Is Gold Starting to Shine Again?

Every time stock markets are in trouble, gold price climb. In the first week of December gold hit its highest since July at $ 1.250, as equities fell hard on the heels of the arrest of Huawei’s number two. Investors feared that the high-level arrest would revive tensions between superpowers US and China and flocked in the safe haven. The trend for bullion remains positive, with prices consolidating above the former resistance (now support area) placed at $1,235 and still trying to recover strength for further rallies.

From a technical point of view, the first target is $1,260, with space for further rallies to $1,300 if the Fed tightens more slowly. This seems more likely after the more dovish comments from Jerome Powell lately, but also after the latest nonfarm payrolls report, which showed 155,000 jobs were added, well below the expected 200,000.

The recovery of gold, however, is not coming out of the blue: investor interest has grown progressively over the last few weeks and even months. In October, we saw the first real signs of a significant recovery when the precious metal jumped by over $30 in a single trading session while US stock markets showed the first signs of weakness, after almost a decade of the bull market.

Moreover, the recent speech by Jerome Powell revealed a more cautious Fed, more accommodating than what thought after previous meetings, which is certainly a function of shifting expectations over economic growth. The likely slowdown in global growth could push the Fed to decrease the pace of its interest rates hike, reducing the forecast for 2019/2020. In the first three-quarters of 2018 markets priced a hawkish Fed, now things could change. This could prove to be a shot in the veins for gold, traditionally inversely correlated with the trend of US rates.

So – despite the strength of US Dollar on Forex market – in just a few weeks the sentiment has drastically improved, with prices moving far from the bottom reached in the summer at $1,160 and climbing well above $1,200. Moreover, after four months of outflows, ETF gold inflows in October and November swung back to positive territory, confirming growing investor interest in bullion, while the number of analysts upgrading their outlook for gold in 2019 has grown.

In other words, some of the ingredients needed for recovery seem to be already in the mix. Of course, a lot still hinges on the final decisions of the Fed, growth in the US and elsewhere but also on stock markets moves and the geopolitical scenario.