Gold buyers and precious metal investors enjoyed a solid week of upticks in gold prices last week. Hitting a three-month high 1, some traders began to whisper about a rally. However, the week ended with a small dip, leaving investors in gold wondering if the movement would carry into this week.
Stronger Dollar into 2016?
Unfortunately, that downturn continued on Monday, and ended down for the week, in spite of an uptick to $1,172.90 on Friday trading. The main concern for this week has centered on the value of the U.S. dollar. Comments early in the week from several sources on the euro saw it drop in value against the U.S. dollar.
As gold buyers know, a strong dollar puts downward pressure on most commodities, including gold and oil. That is one reason the Chinese and Russians are working towards establishing an alternative market that is not denominated in the U.S. currency.
Overshadowing this week’s gold buying were comments by the head of the European Central Bank, Mario Draghi. The ongoing issue of government stimulus activity was addressed only in part by the ECB president, indicating the overall level of monetary stimulus would not be addressed until December. Many observers actually saw an indication of an increase in the stimulus program in the remarks.
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While analysts chewed on this throughout the week, the overall consensus is that quantitative easing will continue into 2016. Despite the view of Goldman Sachs noted below, that makes a Fed increase this year quite remote, good news for gold traders.
Technical Indicators Remain Bullish
The news noted other potentially positive signs, however. In fact, Matt Weller, senior market analyst at Forex.com, stated late Thursday, “Gold’s technical outlook remains optimistic in the near term.” He continued with technical insights that included, “The shallow, controlled pullback after the big rally of the previous days has created a clear bullish flag pattern only seen as a if we see a breakout above the top of the flag (currently near 1180).”
The possibility – some say probability – of a technical breakout is one reason many see the close on Friday as a cautiously positive sign. Those analysts projecting such a breakthrough at $1,180 see a possible move on up to the $1,200 level in the near-term.
Balancing this optimism are several analysts who see the renewed gold buying as a short-term event with more downward movement in the forecast. For example, Goldman Sachs has seen their three-month forecast of $1,100 exceeded in recent days.
Yet, they have a 12-month forecast of $1,000 an ounce still on the table. Influencing their thinking, according to the firm’s head of European commodities, Max Layton, is the remaining expectation of a rise in the Fed Open Market Committee benchmark in December.
Reading the Tea Leaves
All of this leaves would-be gold investors trying to sift through the conflicting reports. With a strong indication this is a good time to buy gold before a possible breakthrough; the political and economic environment leaves some listening to the more conservative discussions. However, in light of the fact that Goldman’s bearish forecast includes a December Fed rate hike, more and more traders are discounting their prediction, particularly in light of this week’s ECB announcement.