No secret that gold prices have been under pressure for several years and is marking its 3rd straight annual loss. The precious metal is seeing levels not seen since early 2010 and the future still looks uncertain at best.  Gold, which is traditionally viewed as an inflation hedge has fallen to the perfect storm of monetary policy and a strengthening dollar in 2015. Since gold offers no income to investors, it becomes less competitive, especially when rates move higher. The real question here is with the Fed rate hike behind us, has gold already priced that and perhaps set to move higher in 2016? The focus in 2016 will be if the Fed raises rates again and/or the pace of raising rates,  in other words, if the Fed doesn’t raise rates again or if this December rate hike fails, gold could see some strength on US dollar weakness.

Not that history always repeats itself, but if we look back at the last period of Fed tightening (June 2004 – June 2006), we can see that gold rose steadily so higher interest rates doesn’t necessarily bode poorly for gold.

From a long-term technical perspective, gold prices continue to remain above the psychological $1000 level. This level served as strong resistance in 2008 and 2009 but reversed roles after prices broke out above in late 2009. 2015 is the only real significant time this level has been tested since early 2010.

On a short time scale, prices seem to be consolidating between 1050-1080. Prices are below the downward sloping 50 and 200 day moving averages so there isn’t any significant indication of an uptrend. On the margin, there is a bullish development worth noting in that as prices remain stagnate, momentum (RSI) is starting to build upwards which could signal a move to the upside.

All things considering, gold actually held up quite well when compared to other commodities like oil (-29%) and copper (-24%). 

Tom PsarofagisComment