Gold prices have moved up today to hit a 5-week high as the dollar weakens and technical buyers jump into the market. Recent bullish momentum has drawn buying interest from technical traders, while also likely forcing some shorts to cover.
The primary force behind gold’s upside today is a weaker dollar. The dollar had been hanging tough around a 1.5-year high, but the recent “cease-fire” agreement over trade between the U.S. and China has deflated its safe-haven appeal. The dollar could remain under pressure if progress is made between the two nations towards a viable long-term deal on trade and talks will be ongoing heading into the New Year.
Also likely playing a role in the dollar’s decline is the notion of an increasingly dovish Fed and falling treasury yields. The Fed expressed a major change in views in recent commentary, and seems to recognize the risk of a significant global slowdown. Although the central bank will almost certainly stick to its plans for another rate hike this month, the outlook for further tightening remains unclear. The Fed had penciled in another three rate hikes for next year, although after recent comments from Fed Chairman Jerome Powell, markets now appear to be pricing in only a single hike for 2019.
After trading around the $97.50 level earlier this month, the dollar has eased off a bit and is currently in the middle of its recent trading range. The $96 level on the daily chart should provide some key support for the greenback, while a breach below that level could set the stage for a much more significant reversal. The currency has acted as a major roadblock to higher gold in recent months, and any further downside has the potential to ignite a significant rally in gold and other dollar-denominated asset classes.
The spot gold market is sharply higher by $20.91 per-ounce at $1241.12. The metal is up a solid 1.71% thus far on the session, and could potentially see further strength if outside markets continue on their current course.
Heavy resistance may be seen around the October highs in the $1245-$1252 area, and this level will act as a key test for the bulls. The market’s technical posture has improved significantly, with the market now trending higher. An upside breakout above key resistance on a closing basis could set up a sharp and rapid rally higher in the sessions ahead.