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Gold Prices Expected To Trend Higher In Quiet Holiday Week

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(Kitco News) - A U.S. dollar struggling to find momentum and last-minute tax selling in record-breaking equity markets could help push gold higher next week in what likely will be a quiet holiday trading period, according to some analysts.

Not only is gold benefiting from a weaker U.S. dollar, but a collapse in Bitcoin, which at one point Friday was down more than 40% on the day, is another major headwind removed from the gold market.

Heading into the Christmas holiday weekend, gold futures have pushed to a more than two-week high. February gold futures last traded at $1,278.20 an ounce, up 1.6% since last Friday. This is yellow metal’s second consecutive positive weekly close.

The rally in gold is also helping to push silver prices up, with this metal also trading at a two-week high. March silver futures last traded at $16.44 an ounce, up more than 2% since last week.

Looking ahead to next week, many analysts are bullish on gold as the U.S. dollar could continue to struggle heading into the new year. The U.S. dollar index is down almost 10% this year in what has been the worst year for the currency in more than a decade.

“The U.S. dollar didn’t see much of a rally on the tax vote and I don’t think that bodes well for 2018,” said Bill Baruch, president of Blue Line Futures. “I think we will see the dollar push lower in the new year and that will be good for gold.”

While Baruch is bullish on gold in the near term, he added that he doesn’t know if it’s a great buy at these levels. He said the time to buy was following last week’s Federal Reserve monetary policy decision.

“We were kind of looking for a pullback this past week as a good entry point, but that didn’t happen. I think gold is still at a good level as I am confident prices will be higher in three weeks but I just wouldn’t chase this market,” he said.

Colin Cieszynski, chief market strategist at The Fundamental Technician, said that he agreed that investors shouldn’t try to chase the market, as technically the price is in the middle of a new trading range.

“I think you could nibble at gold at these levels, but I definitely wouldn’t want to chase this market,” he said.

Not only is gold benefiting from a struggling U.S. dollar, but Cieszynski added that gold is seeing reduced headwinds from a collapse in Bitcoin, which is currently down more than 20% on the day. He added that further weakness in the cryptocurrency could help gold prices push higher next week.

“Gold is in the middle of a range between $1,240 and $1,300, and I think prices could go higher as we are seeing solid accumulation,” he said.

Equities May Drop Ahead Of New Year

David Madden, market analyst at CMC Markets, said that while he is not expecting to see major moves in gold next week, he sees prices modestly higher as equities could fall as investors take profits ahead of the new year.
Investors have until Dec. 29 to close out any winning trade for a realized profit for the year. These gains would be subject to capital gains taxes in the new year. Along with taking profits, investors have also been closing out their losing positions, which is called tax-loss selling, as they are able to use these losses to balance out any strong gains, according to tax professionals.

“I think weaker equities next week will be positive for gold prices as the market is in a positive uptrend since last week’s [Federal Reserve monetary policy meeting],” he said. ‘Buying following the Fed meeting has been a good strategy the last few years and I think we can see that trend continue. I think we could see gold test $1,300 an ounce in early January.”

Madden added that markets aren’t expecting the first rate hike of 2018 to come until March, which means that gold has room to move higher in the next few months. He added that there is still a lot of uncertainty surrounding monetary policy next year as there are still several vacant seats that need to be filled at the central bank.

“It’s hard to know what to expect from the Fed when we don’t know who the new members will be,” he said.

CME 30-Day Fed fund futures are pricing in a more than 50% chance of a rate hike by March.

Levels to Watch

For Madden, the key level to watch in gold is the 200-day moving average, which comes in at $1,277.70 an ounce. He added that if that is broken, investors could expect to see a push to $1,300 an ounce.

Lukman Otunuga, research analyst at FXTM, said that he sees $1,280 an ounce as a key resistance point to watch in the near term.

Analysts are also watching $1,290 an ounce as they say this is a key retracement level from the July lows to the September highs.

The Final Say

The only major data to be released next week is the December consumer confidence report from the U.S. Conference Board.

With that, happy holidays and we wish you all a profitable 2018.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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