Will gold continue to glitter?

The price of gold hit a six-week high at the beginning of the week. Increased geopolitical tensions, in addition to a weaker dollar helped boost the precious metal to levels not seen since mid-October.

Given that gold is traded in dollars, this means it tends to trade inversely to the value of the dollar. The dollar has been weaker over the last month or so, which has served to boost the price of gold. The dollar has dropped just shy of 2.4% over the past month, hitting a nine-week low versus a basket of currencies. Meanwhile, Gold, at its high yesterday of $1306, put had rallied 2.7% across the month of November, which would equate to its best monthly gain since February.

The dollar has been under pressure as investors pull back their expectations of interest rate hikes through 2018. The Federal Reserve minutes from the November meeting showed that several Fed officials are increasingly concerned over the stubbornly low level of inflation in the US, despite a strong labour market and robust economy. 

And it’s not just inflation worries that investors are concerned about. There is a lot of change happening at the Federal Reserve over the coming months. Fed Chair Yellen, will be stepping down. The December meeting will be the last meeting that she chairs, whilst Jerome Powell will take the hot seat as from February. Added to this, the Fed still has 4 vacant positions that will need to be filled. Investors are finding it very hard to build expectations of how that path of rate rises may look, without knowing who will be voting. Should the positions be filled by more hawkish or dovish policymakers could go some way as to dictating how many rises could be expected and therefore start to be priced in. The uncertainty over the Fed’s next moves is keeping the dollar low.

Geopolitical tensions also support the yellow metal. Gold is a safe haven asset, so trades look to buy into gold in times of geopolitical uncertainty. As long as North Korea continues with its nuclear programme, geopolitical tensions will bubble with US. However, there is also increasing political tension between Iran and Saudi Arabia which could also support the price of gold.

Gold is currently trying to attack 1296. A meaningful move above this level and a close above $1300 could be interpreted as a strong bullish indicator. Should gold manage to break out above $1307 (Oct. high) then a strong move upwards could be expected. The overall bullish trend is dependent on gold remaining above 1285 going into the close.