After hitting a fresh five-month high, gold is likely to pause while enjoying its recent gains during next week’s thin holiday trading, according to analysts.
The top three drivers for gold this week have been the Federal Reserve, weaker U.S. dollar, and volatile equity markets, which pushed the precious metal to a high of $1,269.60 — the highest level since July. The February Comex gold futures last traded at $1,261.70, down 0.49% on the day, but up 1.65% on the week.
Another significant new driver for the yellow metal next week could be a looming partial U.S. federal government shutdown. In order to avoid it, Congress will need to pass a continuing resolution by 12:01 AM ET on Saturday, December 22.
The impact of a possible government shutdown on markets will be determined by its length, the strategists added.
Light Holiday Trading Week Ahead
Analysts see the week leading up to Christmas and New Years as one with thin trading activity and little liquidity, which can increase volatility in gold.
“We are going to be range-bound next week. Gold has a pretty firm ceiling at this point. It hasn’t breached the $1,260-65 level in any meaningful way for some time. And it is tough this time of year, as there’s little liquidity and things can get carried away. Gold is likely to trade in a narrow range,” Melek said.
Technical Levels
Gold is like to head a little lower next week, said Melek. “On the downside, I’m looking at the 200-day moving average — $1,252, then$1,246,’ he said.
Butler, on the other hand, is seeing gold moving a bit higher from the current levels of around $1,260 while adding that a big surge is not likely. “We could go a bit higher from here, but a chance of a strong year-end rally might fade,” he said.
Gold has the potential to shine in 2019, Butler pointed out. “There’s a lot of macroeconomic headwinds in 2019 that traditionally gold thrives on historically,” he said.
For Wyckoff, the technical picture looks bullish at the moment: “The technical posture for the gold market continues to get more bullish, which suggests more chart-based buying heading into the end of the year. Gold market bulls’ next upside technical target is the $1,285 area.”
The next critical level to watch on the upside for Otunuga is $1,272. “Gold has the potential to shine into 2019 if bulls are able to secure a yearly close above $1,260,” Otunuga said.
Other analysts said that gold’s rally this week cleared the path for prices to rise to $1,300 an ounce. “I believe gold will rise to $1,280next week,” said Richard Baker, editor of the Eureka Miner Report.
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