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Gold price this month and beyond: the yellow metal is likely to trend higher

By David Becker

Gold prices are likely to remain buoyed for the balance of February

Gold prices are poised to break out but appear to be waiting for a breakdown in US long term yields. The 10-year US yield is trading near the low end of its five-year range and poised to break down.

The US dollar has remained strong as the coronavirus spreads and potentially reduces growth. Despite a strong greenback, gold has remained buoyed and is poised to break out to fresh four-year highs.

Gold has historically been negatively correlated to the US dollar. Since gold is priced in dollars, generally as the dollar rises, gold adjusts lower to incorporate the stronger greenback. During the past month, this relationship has broken down.

Gold is also often viewed as a safe-haven asset that strengthens as global economic activity weakens and political unrest occurs. The weakening of the global economy, and potentially the US economy, has pushed US yields lower. Gold prices appear negative correlated to US yields which are poised to hit four-year lows. A breakdown in the 10-year US yield would likely coincide with a breakout in gold prices.

A potential catalyst that could drive yields lower is a slump in US markets. This could begin following Apple’s warning about the risk to its Q1 revenue guidance due to the coronavirus. This announcement over the weekend by Apple has highlighted the likely large economic impact of the virus. Ongoing concerns about the coronavirus are likely to keep risk sentiment under pressure. Global growth was already at risk before the virus hit and now the outlook is even cloudier.

Europe is a perfect example. In Germany, the ZEW survey came in well below expectations and the previous month’s readings. The expectations component, which is considered a leading indicator, tumbled to 8.7 in February from 26.7 in January, while the current situation fell to -15.7 from -9.5.

Gold price prediction: technical analysis

The weekly technicals show that prices are poised to break higher as the 10-year yields are about to break down. Support on the yellow metal is seen near the 10-week moving average at 1,556. Resistance is seen near the February highs at 1,592 and then the January highs at 1,611.

Short term weekly momentum is neutral. The fast stochastic is moving sideways and poised to generate a crossover sell signal. The fast stochastic is printing a reading of 81, above the overbought trigger level of 80, which could foreshadow a correction. The weekly RSI (relative strength index) is also moving sideways and printing a reading of 70, above the overbought trigger level of 70 which also could foreshadow a correction.

Medium-term momentum is positive to neutral as the MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping-to-flat trajectory which points to consolidation.

Daily momentum is positive. The RSI moved higher reflecting accelerating positive momentum. The fast stochastic is also moving higher and just recently pushed through the overbought trigger level area. The MACD is poised to generate a crossover buy signal.

Gold price this month: bottom line

Gold will continue to test higher levels and is poised to break out if the 10-year yield breaks down. The correlation between gold and the US dollar has eased and the yellow metal appears to be moving in tandem with the US 10-year yield.

Gold prices are likely to remain buoyed for the balance of February and are likely to trend higher with a close above 1,593.

FURTHER READING: Hochschild Mining reports better than expected production in 2019

FURTHER READING: Is gold a good investment? Five ways to buy it – the pros and cons

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