Gold is up by nearly 5% in the month of December
And that owes much to the weakness in the dollar this month as traders continue to digest the implications of a dovish Fed next year. That's a big win for gold in terms of fundamental as the commodity has traded as more of a dollar proxy this year than anything else.
From a technical perspective, things are looking up too. Price broke free of the 200-day MA (blue line) and established a bullish bias for the first time since April this year. Since then, the upside break continues to run and is now encountering resistance from the region between the May low @ $1,282.18 and the 61.8 retracement level @ $1,286.97.
As we begin 2019, I would expect two major focus themes in the market to be on the trade war and also on the Fed. The latter will have a stronger influence on the trading direction for gold as it continues to be an alternate dollar trade.
With more and more houses calling for less Fed rate hikes - the latest being Goldman Sachs earlier here - it is going to keep a dovish focus ahead of the FOMC meeting at the end of January to come. That will help to give incentive for buyers to carry on with their bullish momentum as we begin the new year.
Aside from that, seasonal patterns also dictate that we should see a move higher in gold in January:
Gold has moved higher in each of the past five Januaries and on a 10-year average, it has moved up by 3.4% in the first month of the year. Although, you can argue that this December month has been a bit odd as well with gold already up nearly 5% so that could eat into the January gains for next year.
However, the counter-argument is that gold still managed a 3.25% advance in January 2018 despite a solid 2.18% gain in December 2017. So, there's a good case to be made for both sides but if you couple the seasonal pattern with the fundamental and technical biases, it sure looks like gold is set for a decent start to the new year barring any major shift in the current market landscape on trade and the Fed.
