This week could be slower than last, as many investors avoid work, the markets and other responsibilities until the end of the holidays. The weaker dollar index likely played an important role in gold’s recent upside and could continue to do so.
The dollar weakness seen Monday was quite likely attributed to word that the U.S./China “phase 1” agreement would likely be signed sometime over the weekend. This initial agreement between the globe’s first and second-largest economies could potentially be a major step towards a viable, long-term commitment on trade. Few details have been released thus far, however, and it is unknown what concessions both sides will be making in order to make the deal work.
The idea of a U.S./Chinese deal being signed in the days ahead has reversed demand for risk-off assets, of which the dollar is part. If the U.S. and China appear to be seriously mending their trade relations, demand for dollars could see a significant decline as appetite for risk could rise. Although higher risk appetite could also weigh on gold, it could also ignite another reason for bullish investors to buy: Higher commodity demand from China and elsewhere could fuel a sharp rally in the yellow metal that could potentially see prices break out to the upside from recent highs. An upside breakout on the charts could, in turn, draw more buying interest into the market. A strong technical picture could take prices even higher in the process, possibly driving a rapid move towards previous all-time highs around $2000 per ounce.
Whatever the case may be, the gold market appears to have the pieces in place for a solid and sustainable run higher. What the primary catalyst may be, however, is still unknown. The bulls have maintained recent trade above the $1500 level and could look to take out previous highs in the $1550 region in the first sessions of the New Year.
In addition to ongoing U.S./China trade developments, the gold market has several other key issues that have the potential to drive the market sharply in both directions from recent levels. The ongoing Brexit saga could send waves through global financial markets, while another attack against Saudi oil could fuel a global crude scare and global recession. There is also the Trump impeachment to consider, although it appears to be quite unlikely that the U.S. Senate takes action against the President. Concerns over the next U.S. Presidential election could increase in the months ahead and could drive market volatility and selling in risk assets.
Whatever your outlook for the New Year may be, it is difficult to argue the notion that gold has several things working in its favor. If things calm down on the geopolitical scene and if stocks continue their run higher, there are still numerous, important reasons to buy and hold physical gold. As 2019 comes to an end and as the world gets ready to begin 2020, now is the time to keep your focus and approach on the long-term.