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Is Gold Finally Emerging from the Shadows?

By:
Carlo Alberto De Casa
Published: Apr 10, 2019, 09:27 UTC

Gold ended 2018 in a strong position, with a positive trend that continued into the first part of 2019. A setback came in recent weeks, with the recovery of the US dollar in the forex market, which is usually a negative factor for gold.

Gold Price Analysis

But the bullion run-up has also been held back by the risk-on sentiment dominating markets and a greater investor appetite for risk, which has led to greater inflows of capital into the stock market and towards assets perceived as riskier, such as crude oil, which scored a substantial rally in the first quarter of 2019.

So let’s examine gold in detail.

After the decline of last summer, due to expectations of hawkish moves by the Federal Reserve, the market has gradually begun to price in a more accommodating American central bank. These expectations were confirmed at the beginning of the year, when Jerome Powell said that the Fed would assume a “wait-and-see” approach in 2019, effectively crossing expectations of any further interest rate hikes after the 4 adjustments to the cost of money made by the Fed in 2018.

In the wake of this news, the gold rally continued above $1,300 but clashed with the strength of the resistance placed at $1,360, an area that has repeatedly stopped bullion’s attempts to move higher in recent years. This level was an obstacle to the precious metal’s run-up in 2016, immediately after the Brexit vote, but also in 2017 and 2018, when it touched highs precisely at this value.

From a technical point of view, we, therefore, find a first key level at $1,300, but markets are also looking at $1,360 as a possible new test. The breach of these levels would be interpreted as a further signal of strength, and it would make space for a further rise, with another potential test at $1,400, an area indicated by many analysts as a target for 2019.

Looking at fundamentals, it must be remembered that in 2018 demand had a real boom, boosted by central banks around the world purchasing over 650 tonnes of gold, a jump of 74% y / y. This was the highest level in 50 years.

Demand from the jewelry sector (+ 1%) and the industrial sector (+ 0.7%) also increased slightly. On the production front, the amount of new gold extracted from the mines grew by about 2 percentage points according to Metal Focus, contradicting forecasts which saw new gold production growth stop from 2018. On the other hand, recycled gold, the so-called “scrap gold” (i.e. the gold already placed on the market), grew by 1%.

By Carlo Alberto De Casa, Chief analyst at ActivTrades

About the Author

Carlo Alberto De Casa is analyst at Kinesis and technical analyst for Italian newspaper ‘La Stampa’. Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a weekly commentator for CNBC Italy and a columnist for La Stampa. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities.

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