Gold continues the dynamic rally which is been in play for just about a month, with today’s gains of $24.00 taking the precious yellow metal to $1424.10, a net increase of +1.71%. Although dollar weakness provided a tailwind to the rising precious metals prices, the effect of dollar weakness was marginal at best.
We can see that both in the futures as well as the spot markets. August futures for example gained 1.71%, as the dollar index dropped by 0.23%, meaning that approximately 1.5% of the 1.71% gain today was directly attributed to buyers. Physical gold is currently fixed at $1420.30, which is a net gain of $21.30 on the day. According to the KGX (Kitco Gold Index) only $2.90 of today’s gains can be attributed to dollar weakness, with the remaining $18.40 a direct result of bullish market sentiment and buying.
The current rally in gold officially began last month, and resulted in a net gain of $26 in May. However as of today gold prices have increased by approximately $110 from their opening price of $1312 to current pricing at $1422.00. The last time gold gained over $100 on a monthly basis occurred in February 2016. This was followed by a strong price advance in June 2016 when gold prices gained almost $100. Nonetheless it has been quite some time since we have witnessed this type of a move for a sustained period of time.
As we spoke about last week there are multiple events occurring simultaneously that collectively have had a strong bullish bias on gold prices. At the forefront of the entire global economic contraction is the current trade war between the United States and China. That has led to dynamic changes not only in the Federal Reserve, but also with other Central Banks including the European Central Bank.
Traders and market participants believe that these institutions are returning to a much more dovish monetary policy. They are effectively moving back towards monetary stimulus.
Based on our technical studies the next level of potential resistance does not occur until $1457.50 which is the .38% Fibonacci retracement from a data set which begins at the end of 2008 when gold was trading at $700 per ounce up to the record high that occurred during the middle of 2011 when gold reached its apex above $1900 per ounce. There is also a 50% Fibonacci retracement level which occurs at $1482.30. This is derived from a different data set which begins at the record highs of $1900 per ounce and concludes at the end of 2015 when gold hit a low of $1040 per ounce.
However, these technical levels are certainly not as important as the fundamental factors driving the market higher. Which tells us that the next meaningful level will occur when there is a major fundamental shift of the events that ignited this current rally in gold.
Wishing you as always, good trading,