Gold Monthly Forecast – January 2018

The gold prices had a very volatile month during December with the first half being marked by weakness and the second half of the month being marked by strength as the dollar tossed and turned during the course of the month. It now sits at an important and interesting region with the bulls in full control and it remains to be seen whether the momentum would continue during the course of the new month or whether there would be a reversal.

Gold Prices Volatile

The first half of the month of December was marked by some steadiness in the dollar as the Fed did hike rates as was expected widely by the markets. But they also were not very hawkish about further rate hikes and also on the inflation data and with the current Fed Chief Yellen leaving her job at the beginning of the new year, it pointed to a period of uncertainty and risk. This did not lend too much of strength to the dollar but the gold market was so weak, by the lack of demand and the growth of the new darling of the markets that was bitcoin, that this steadiness in the dollar was enough to push the gold prices lower as it headed below $1250 and towards the $1235 region during the first half of the month.

This weakness in the gold prices seemed to have lulled the bears into a sense of complacency and they did not seem to be ready for the reversal that followed. The last couple of weeks of December are usually a period of low liquidity as the traders go out on their holidays and this year, it was also marked by long weekends but the bulls took full advantage of this low volatility and managed to reverse the entire move lower, over the course of the next 2 weeks. The bulls pushed the prices back through $1250 and the move continued higher through the $1280 region and finally managed to crack through the $1300 region to end the month on a very strong note.

This has helped to boost the confidence of the bulls for the new month ahead as they look to heap further agony on the bears during the month of January. But this is also a period that needs to be marked with caution as the entire move higher was made on low volume. Usually, moves done under low volume are quite highly likely to be reversed and it remains to be seen whether that is likely to happen in this case as well. Not much has changed for gold fundamentally as the market continues to be under pressure due to lack of demand.

Bears Look for Reversal

The Fed and the other central banks are looking to hike rates which makes the bond and the interest rate market quite attractive to the large investors and this is likely to take some sheen off the gold prices. Hence, this move higher in the gold prices need to be taken with a pinch of salt and traders would be well advised to stay away from the markets for the first couple of weeks and watch the price action and see where the investors and traders would push the prices before they jump in with their trades.

One of the main reasons for the prices to move higher is the weakness in the dollar and this is likely to get clarified during the first week of January through the FOMC meeting minutes and also through the various data that would be released from the US. If the Fed continues to be hawkish over the rate hikes and the incoming data also comes in strong, that would be a good boost for the dollar and the bears in the gold market would then use this opportunity to sell off gold and this could bring in a lot of pressure on the gold prices. With the fundamentals of gold on a sticky wicket, the bears would not need a second invite to sell off gold.

On the technical side, we see some strong resistance in the gold prices in the $1320 region followed by some more resistance in the $1345 region and we believe that either of these regions would manage to hold the prices for the medium term and would look to reverse the large move higher.