Year after year, it bears repeating that January is seasonally the best month for gold. It is just one of those things in markets and more often than not, that trend delivers as it should. But will it do so again this time around?
I touched on that two weeks ago here in relation to a bit of a technical setback in gold at the time. But since then, gold has rallied back to sit higher in December trading, recovering from around $1,975 to around $2,050 currently. However, the key resistance from the 2020 high at roughly $2,075 continues to hold on the daily, weekly and monthly charts, and that remains the critical level to watch heading into next year.
Normally, I'd like to think that gold can bank on this seasonal tailwind 9 times out of 10. But considering the technical situation above, it's not necessarily a given that gold will be able to shine in January trading once more. That is because if gold is to advance further, it has to pass the test of breaking the key resistance level outlined above. And that means gold needs to push up to close at record levels.
The rally in gold since November also comes on the back of a softer dollar and sliding bond yields, with the latter being a key driver in particular. That comes as the rates market steps up pricing for central bank rate cuts for next year.
The question for gold now is, will traders front run those expectations further and manifest that in the form of a technical break in January? Or will such a break require validation from the rates market?
It's certainly an interesting one and may act as one of the first few litmus tests in gauging the market's appetite on the central bank outlook to kick start 2024 trading.
