The gold market has continued its march higher despite facing several major headwinds. Last Friday saw gold rise even as both stocks and the dollar index gained ground. The strength seen in recent sessions may be indicative of increasing demand and potentially higher prices ahead.
Risk Appetite
Investor appetite for risk was on the rise as last week came to close. Reports of productive negotiations over trade in Beijing sent stocks higher, although a deal still has not been finalized. Negotiators reportedly have come up with the framework for a long-term agreement on trade and talks are set to continue in Washington.
A tariffs truce is set to expire the first week of March which could allow for the U.S. to double current tariffs on some $200 billion of Chinese goods. It remains unclear, however, if the U.S. will do so and it has been suggested that tariffs may remain at current levels if a deal looks to be in the works.
Stocks and the Dollar Climb
News of progress over trade sent stocks sharply higher to end the week. The benchmark Dow Jones Industrial Average rose by almost 444 points while the broad-market S&P 500 gained over 1% on the session.
The dollar index also rose, seeing a small gain as trade talks boosted the currency.
Gold Showing Strength
Higher stocks and a stronger dollar typically act as obstacles to higher gold prices. When investor appetite for risk is robust, investors have a tendency to flock to stocks and risk assets while interest in perceived safe havens such as gold dwindles. As a dollar-denominated asset class, the gold market also often exhibits a negative correlation to the dollar. Neither of these tendencies was the case last Friday, however, as all markets were on the stronger side of the ledger.
This would seem to indicate that the gold market is showing some significant signs of underlying strength, and that demand may be increasing. An increase in overall demand could potentially keep prices moving higher, regardless of what stocks or the dollar do.
Market Reaction
The gold market was stronger on Friday, closing higher by $8.46/oz at $1,326.56. The market appears to be making a successful attempt to take out the previous swing highs made in January and could potentially now set its sights on resistance in the $1,350 region.
Although the market may encounter some bumps in the road, improving fundamentals and a stronger technical posture may keep prices trending to the upside. Any dips are likely to be shallow and bought until proven otherwise, and recent price action could potentially be viewed as the early stages of a protracted bull market.
Gold Price Chart
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