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Gold Monthly Forecast – February 2019

 


The month of January 2019 was highly positive for gold in both the spot and futures market. Geopolitical events continued dominating price action across the month. However, given dovish nature of headlines pertaining to major events despite prevalent risk appetite in market safe haven assets saw some level of steady demand across the month. And given the fact that gold sits on top of the safe haven pyramid, it saw steady demand and recorded sharp gains across the month. As of February 1, 2019, Gold has recorded four consecutive months of positive price action in the global spot market. Further, the most note worth fact of the month is the fact that yellow metal has managed to breach critical price resistance level of $1300 and establish a steady bullish rally above said level making it a key psychological support level for the month ahead. The first week of January 2019 saw gold make solid gains continuing on with positive momentum from later half of December 2018. There was a steady state of caution among investors across the globe from the start of the year-end holiday season and this continued into the first week of January as investors were cautious ahead of Brexit vote & Sino-U.S. trade talks scheduled to occur later in the month.

Yellow Metal Breached Critical Price Level At $1300 Handle

Gold hit 6-1/2 month highs as concerns of the global economic market remained high following New Year, however, gold lost most of its gains at end of the first week despite closing positive for the week as risk appetite boomed in equity and Forex markets as Beijing announced a new round of trade talks with Washington. However gold recovered most of its losses once trading session began for the second week as Dollar weakened in the broad market owing to dovish comments made by Fed Chair Powell and his predecessors which hinted at a possibility of delay or pause in Fed’s rate hike plans for 2019. The price action in the spot market for gold was range-bound for a majority of January as news-driven momentum saw price locked with highs and lows of the first week of January from second to the fourth week of January 2019. Bulls and bears waged war for control across second and third week resulting in tight price action. The low price of gold and cheap exchange rate owing to weak US Dollar boosted demand from China and India, two major markets for gold both in the virtual and physical market. Demand for gold was further underpinned in global markets owing to North Korean leader Kim Jong Un’s visit to China at the same time while the U.S. delegates were present for face to face talks in China.

However, Dollar’s rebound from 2½ week lows helped limit upside move.  Disappointing trade data from China and Historic defeat of UK Government in their Brexit deal approval bid in UK House of Commons by a margin of 230 votes underpinned gold bulls. However headlines which hinted at Chinese state councils decision to take measures which will help improve economic conditions in China and recover from losses incurred during early days on ongoing trade war with US by first quarter of 2019 and statement from U.S. officials which hinted that they considered reversal of tariff on Chinese import goods in a bid to ease the impact of trade war on US economy and help close a trade deal with China resulted in gold losing all gains made early in the week and close down by $8 at end of the third week. Majority of the 4th week of January saw price take consolidative action near monthly lows as headlines inspired momentum inspired two-way price action. Macro data hinted that economic growth pace in China has hit decade low as evident from Chinese GDP data despite the same meeting the government’s minimum GDP target and this was followed by International Monetary Fund revising their growth forecast for 2019 which hinted at slowdown in global economic growth during 2019 which helped gold see steady demand and prevent further declines. However, report of an announcement from the Chinese government that they plan to increase fiscal spending to boost their economy boosted risk appetite in the global market and helped offset the influence of IMF growth forecast.

Event Driven Momentum To Drive Gold To Multi Year Highs

Then came the saving grace for Gold bulls in form of Wall Street Journal report which hinted that the US Fed was considering terminating their QE program earlier than expected pushing US Dollar to rock bottom and giving Gold the much needed bullish breakout trigger to breach $1300 handle. Having closed positive with a breach above critical price level, gold traded positive across the last month of January breaching 7th and 8th month highs supported by outcome of UK parliament’s second meeting of the month  which saw both ruling and opposing parties fail at same time bring Brexit Chaos back to the forefront and official comments from US FOMC members that stated future rate hike will depend on U.S. economic activity and there was possibility of rate reduction if economic activity showed signs of slowing down and QE termination will be earlier than expected owing to impact of ongoing trade wars and partial government shutdown on U.S. economy pushing Dollar to new lows and helping Gold bulls establish a stable rally above $1300 handle. Moving forward, Gold is expected to continue its positive price action across the month of February 2019 and then some as the outlook for safe-haven assets remains positive in the medium term. Given the fact that event-driven momentum is expected to dominate global markets across the month of February and all major events currently paint a dovish picture in the month ahead, gold is likely to reach multi-year highs near $1365/75 handle in the month of February with small chance to even test critical resistance at $1400 handle. Brexit is unlikely to be resolved in the month ahead of both sides have tables conditions deemed impossible by the other side. Meanwhile, if China and U.S don’t agree to trade deal by the deadline of March 1, 2019, President Trump has promised to impose fresh tariffs on Chinese goods which has caused safe-haven demands to rise to all-time high painting positive picture for Gold in the month ahead from a fundamental perspective.



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