On January 31st, 2019 gold hit its highest value this year when on an intraday basis gold future traded to a high of $1330 per ounce. From there pricing began an extremely shallow retracement trading as low as $1306 on February 7th. This shallow retracement occurred in tandem with a rally in dollar strength which began on the very same day that gold traded to $1330, January 31st.
Although pricing has been dominated by dollar strength or weakness it appears that it is now forming a base at these new plateaus, defining new support levels. In fact, the current rally that gold has been deeply entrenched in has been based upon a series of price spikes, in which gold trades to a new high, followed by a period of sideways trading as pricing forms a base at a new level.
These periods of consolidation are defined and characterized by their tight and narrow trading range. Since the middle of November 2018 gold has gained just over $130 in value. These gains have occurred with very shallow corrections which become a new point of consolidation preceding a spike in pricing. This pattern has repeated for the last three months and also been the most visible characteristic of this current rally.
In light of today’s incredibly strong ‘risk on’ market sentiment which resulted in the Dow Jones gaining almost 400 points and the NASDAQ composite gaining almost 1.5%. Gold futures still gained $2.30 in trading, with the most active April contract closing at $1314.20. However, on closer inspection these modest gains were entirely due to dollar weakness. Considering that the dollar index lost approximately 35 points today (-0.35%), and gold futures gained 0.18% it is obvious that there was mild selling pressure.
The same ratio is evident when we look at spot gold pricing today which is currently fixed at $1310.60 after factoring in today’s modest gains of $2.80. However, on closer inspection dollar weakness contributed $4.45 in value, and modest selling pressure resulted in a decline of $1.65 resulting in a gain of $2.80.
As reported by Kitco News today, there is another major factor that could be contributing to the recent resilience and support in gold pricing being China’s large addition to its gold reserves in January, “2018 was an unprecedented year for central-bank gold demand and that trend appears to be continuing through the start of the new year as China bought nearly 12 tonnes of gold last month. The latest reserve data from the People’s Bank of China shows its gold holdings increased by 11.8 tonnes to 1,864 tonnes as of the end of January. The newest increase follows December purchase of just under 10 tonnes of gold, the first time the central bank increased its reserves since October 2016.”
A purchase of this size by the Chinese central bank is significant on multiple levels. On a technical basis it is highly supportive of current pricing above $1300. But most importantly it confirms the belief by the Chinese that gold’s position as a safe haven asset continues to grow.
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Wishing you as always, good trading,
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