Gold Hits New Highs & Tests Resistance Along the Way

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As gold hit its five month high, its surge in price will likely pause as the bullion enjoys its gains during next week’s light holiday trades.

The biggest factors that contributed to the increase in the gold rate this week include the Federal Reserve, dwindling value of dollar, and the shaken equity markets which, all of which have allowed gold to rise to a high of $1,270, its highest level since the month of July.

“The combination of dollar weakness, volatile equity markets and expectations of fewer rate hikes in 2019 boosted buying sentiment towards the yellow metal” says Lukman Otunuga, a research analyst at FXTM.

Wednesday saw the Federal Reserve increasing interest rates by a basis of 25 points to 2.5%. The Fed did announce fewer rate hikes for next year amid fears of uncertainty in the financial market and slow global economic growth.

The US Equity market had a rough week, losing all their gains and closing lower as 2018 nears its end. If this continues, the price of gold will certainly rise higher. Another big reason why gold will continue to rise is the fear of a possible shutdown of the US Federal Government. Congress needs to pass a continuing resolution in order to avoid this.

Donald Trump announced his refusal to become a part of the bipartisan CR that was passed by the Senate. When the House approved a bill with Republican only support, Trump issued threats of a ‘very long’ government shutdown if the Democrats do not support funding for building a wall along Mexican borders.

Strategists believe that there is an 80% chance that the government will shutdown, at least partially. This will impact the global economy, sending ripples across equity markets and further weakening the position of the dollar. All the while the Chinese economy will stand to gain, pushing gold rates higher still.

As the equity markets suffer, the bullion industry will gain. The extent of damage caused by a possible government shutdown can only be determined by the length of the shutdown, according to the strategists. The market is not reacting well to this news and economic prospects only look worse, with the possible government shutdown occurring at the end of this year.

With so many risks in the horizon, it will have an adverse impact on equity markets. Meanwhile gold looks to break past $1,350 by the end of 2019 followed by reaching $1,400 by the end of 2020.

This is supported by Capital Economics in its 2019 outlook, which also suggests that the Federal Reserve will start cutting rates in 2020, boosting gold prices sat the end of the year. Safe haven assets are poised for growth as the dollar continues to weaken. Other precious metals such as palladium and platinum will also experience rapid growth in prices, largely gaining support from gold and silver. Many world governments will push for more stringent regulations to keep vehicular pollution in check, allowing palladium to increase in value.