A strong U.S. dollar has stymied gold, but global growth concerns and other broad market worries could give the precious metal a boost.
With fourth quarter earnings season in full swing, stocks have started January on the upside while spot gold fell below the $1,300 price level–a key technical indication that the precious metal is struggling to move past this resistance level.
“With the equity markets coming up once again, we are seeing a lesser need for safe haven assets such as gold and yen,” said David Meger, director of metals trading at High Ridge Futures.
“As a result, we are continuing to see a slight retracement off of the psychological $1,300 resistance level,” Meger added.
However, a confluence of the aforementioned market worries could trigger gold prices as investors seek to the precious metal for safe haven options. After four rate hikes in 2018, the Federal Reserve pausing interest rates in 2019 could also result in a weaker dollar and stronger demand for gold.
“Right now, there is a lot of insecurity about the stock markets, global economy and trade,” said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
“These concerns are holding gold up and one wrong move can pop gold up above the $1,300 level.”
Inflation Closely Watched
Last Friday, inflation data met expectations, which kept the U.S. dollar in check and allowed gold to advance slightly.
The consumer price index for December came in line with expectations–down 0.1 percent from November and up 1.9 percent, year-on-year–marking the first decline in nine months. Meanwhile, the cost of living increase over the past 12 months slowed to 1.9 percent from 2.2 percent, representing the first time it’s dropped below the 2 percent since August 2017.
“Overall, inflation risks remain well in check and are well down the list of potential concerns for both the capital markets and the economy,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “That bodes well for 2019 if the Fed can slow the pace of rate hikes or pause outright.”
Golden Buying Opportunity
Despite all the headwinds gold has had to face in 2018, some analysts feel that the precious metal has weathered the storm and offers a prime buying opportunity for investors in 2019.
“Faced with rising interest rates and new record highs in the stock market, gold has done remarkably well in 2018, especially as consumer demand weakened even as mining output sets a new all-time high,” said Adrian Ash, director of research at BullionVault. “Supporting the gold market all through 2018, the geopolitical backdrop is worsening again, keeping (exchange-traded fund) positions firm and catching any dips in the price with new buying.”
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