A Golden Start for 2018

A Golden Start for 2018

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Gold posted a 13.65 percent increase in 2017, and it came out of the gate during the first week of 2018 adding to that gain.

Over the past three years, the yellow metal has established a pattern of lows in December and bullish price action at the start of the next year. 

As the weekly chart shows, the yellow metal traded at a low of $1046.20 in December 2015 and then rallied at the start of 2016. In December 2016, gold traded to a low of $1123.90 and rallied into 2017. Last month, gold found a bottom at $1236.50, and it has been moving higher in the aftermath completing the pattern for three straight years.

 

Source: CQG

 

Aside from the pattern, gold has a lot going for it in 2018. The dollar has been weak and remains near its critical support level on the dollar index. The inverse historical relationship between the greenback and the price of gold is supportive for more gains.

The price of gold tends to thrive during periods of fear and uncertainty in the world. The Middle East is a turbulent region and deteriorating relations between Iran, and Saudi Arabia could come to a head in the months ahead. At the same time, a nuclear-powered North Korea makes the Korean Peninsula a flashpoint for the world. The geopolitical landscape consists of a minefield of potential factors that could cause a flight to quality in markets which would benefit gold.

The price action in the yellow metal during the final month of 2017 created a bullish technical pattern on a long-term chart. 

 

Source: CQG

 

The monthly chart illustrates a pattern that could be an omen for higher gold in 2018. In December, the yellow metal traded to a lower level than during the previous month and then closed above the prior month’s high. The last time the gold market put in a bullish key reversal trading pattern on the monthly chart was in July 2011 which resulted in a move to the all-time high in the yellow metal. Gold rose to $1920.70 per ounce in September 2011.

2017 was the year of digital currencies as the prices of Bitcoin and other cryptos surged. The trend in the digitals is a sign that market participants are looking for alternative investment assets. Gold has a long history as a metal that investors and traders turn to as an alternative to stocks, bonds, and other assets when uncertainty grips markets. Gold has been making higher lows since late 2015. Critical technical resistance stands at $1377.50, the July 2016 high. At the $1320 level, the yellow metal is closing in on a test of that peak which could launch a technical rally during 2018.

It has been a golden start to 2018, and the lustrous metal could be on its way to lofty levels in the months ahead.

 

 

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