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James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

Gold futures closed higher on Thursday despite increased demand for higher risk assets. Gold has been able to hold on to this week’s solid gains in spite of back-to-back strong performances in the U.S. equity markets because the dollar has remained weaker. Furthermore, the excessive volatility in the stock market suggests instability which is probably being driven by uncertainty over the lingering trade dispute with China, growing expectations of a recession and the prolonged government shutdown.

On Thursday, February Comex gold settled at $1281.10, up $8.10 or +0.63%.

Earlier today, gold hit a high of $1284.70. This move took out the July 9 top at $1284.10, but fell short of the technical 50% target at $1285.70. Traders used this area to book profits, turning the market lower for the session.

At 1259 GMT, February Comex gold is trading $1279.90, down $1.30 or -0.10%.

Forecast

The bullish price action in gold is being generated by the weaker U.S. Dollar. This trend is likely to continue as long as investors continue to sell the dollar. Stock market volatility has also contributed to the movement in gold.

With the stock market strengthening this week and gold running into resistance at $1284.10 to $1285.70, we could see a short-term pullback. Unfortunately for the bullish traders, the nearest support target is $1260.80. I don’t think we’ll get there today, but if the market finishes lower then this will signal the return of sellers.

Today’s price action clearly shows that the 50% level at $1285.70 is the next trigger point for an acceleration to the upside. The question is will investors continue to buy strength at current price levels, or will they play for a pullback into support at $1260.80?

This decision is likely to lead to a two-sided trade over the short-term. Gold will continue to get support from a weaker U.S. Dollar, but in order to trigger an acceleration to the upside, it’s going to need help from a weaker stock market.

Given the current set up, the key level to watch the rest of the session is yesterday’s close at $1281.10. Gold is either going to regain strength over this level and make a run at breaking out over $1285.70, or its going to weaken under this level with the possibility of a retracement to $1260.80.

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