Gold Rises, Will it Keep Soaring? Or Fall With a Bouncing Dollar?
After hitting their lowest level in 6 years in August, gold prices have been rising to an almost 4-month high. Last week we noticed technical strength in silver prices and gold followed this week.
Interest rates have been dropping on lower expectations for a Federal Reserve interest rate hike this year. Investors know that the Fed’s decision to raise interest rates rests on economic data and the latest economic figures are not encouraging. The latest US retail numbers continue to show slow growth while economic data from China is adding more evidence that it’s economy is slowing more than expected.
Bond yields have also been falling with interest rates and one of the side effects of lower yields is a weaker dollar. The combination of lower rates and a weak dollar is particularly good for gold and other precious metals.
It’s not a coincidence that the dollar index has fallen since August, at the same time gold started rising. The dollar index is now approaching a key support level that has held the whole year. Meanwhile, gold will have to test resistance levels near $1,250 an ounce.
A Big Bounce?
The most likely scenario we see at this point is the dollar bouncing off support which would have a depressing effect on gold. That would make gold prices lose steam as they get closer to resistance at $1,250 an ounce.
However, if the dollar index breaks below support levels, that would be a bullish signal for gold, increasing the likelihood of higher gold prices in the coming months.
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