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Price of Gold Fundamental Daily Forecast – Firm Despite Stock Market Recovery, but Will Rally Last?

By:
James Hyerczyk
Published: Dec 26, 2018, 11:25 UTC

With gold correlated to the stock market, one has to be careful about buying the metal so close to the resistance zone at $1284.10 to $1285.70. Furthermore, gold bulls should keep an eye on the reversal in the stock market because a major recovery could encourage investors to start booking profits.

Gold Bars and Dollar

Gold hit its highest level since July 9 earlier today, shrugging off the recovery in the U.S. equity markets and a firmer U.S. Dollar. Traders also seem to be ignoring the slight drop in U.S. Treasury yields which suggests demand for risky assets may be returning after disappearing from the financial markets for over eight trading sessions.

At 1109 GMT, February Comex gold is trading $1277.30, up $5.50 or +0.46%. This is slightly below the July 9 top at $1284.10 and a key technical level at $1285.70.

Despite the positive shift in investor sentiment, the price action suggests gold traders have little faith in the news developing into something major. They seem to believe that concerns over global growth and the partial government shutdown in the United States should continue to fuel risk aversion over the near-term.

Forecast

With gold correlated to the stock market, one has to be careful about buying the metal so close to the resistance zone at $1284.10 to $1285.70. Furthermore, gold bulls should keep an eye on the reversal in the stock market because a major recovery could encourage investors to start booking profits.

If the stock market rebound is being fueled by oversold technical factors then gold will likely survive a few days of strength. However, if equities are recovering because the President and Congress are developing a plan to end the partial government shutdown sooner than expected then gold could have a more pronounced break.

Given the mild recovery in the stock market and the political instability in the United States, I can see gold giving back only some of its earlier gains. However, a stock market recovery coupled with positive developments pertaining to the ending of the government shutdown will likely driven gold price lower, but not necessarily lead to a change in trend.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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