Why the Price of Gold Could Get a Boost Thanks to the Fed

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The price of gold just managed to tread water last week, but a weakening dollar could give gold a fresh boost in December.

The metal has been fighting a robust U.S. dollar, supported by anticipated Fed rate hikes and trade tensions between major economies, specifically the United States and China.

Gold Prices

Still, gold prices held up particularly well. Consider that on Nov. 12, when the DXY touched 97.5, gold closed way down at $1,200.

And after the last two weeks of dollar gains pulling the DXY back up to 97.25, gold has clawed its way to $1,215.

A lot of the recent dollar strength is likely a buildup of anticipation for the G-20 summit last week combined with the expected December Fed rate hike.

But now that U.S.-China trade tensions have cooled off after the summit and the Fed all but confirmed a December rate hike, the wind might be coming out of the dollar’s sails.

And that could be very positive for gold prices in 2019

Why This Is a Positive News Cycle for the Price of Gold

Gold prices dipped early last week, only to recuperate as November drew to a close.

That allowed the precious metal to post a second consecutive monthly gain.

The U.S. Dollar Index (DXY) starting climbing on Monday (Nov. 26), going from 96.8 to 97.05.  But Tuesday’s (Nov. 27) further rise to 97.35 came as Fed Vice Chair Richard Clarida said the Fed should continue to raise rates gradually while monitoring new economic data.

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That tanked gold from $1,224 to $1,211 that morning before it recovered to close at $1,214.

Then on Wednesday (Nov. 28), Fed Chair Powell said, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy.” That was interpreted as more dovish than back in early October. At the time, Powell said rates were a long way from neutral. In response, gold popped to recuperate to $1,225.

You can see just how strongly traders reacted to Powell’s Wednesday comments in the DXY chart here…

Thursday (Nov. 29) would see gold consolidate near the $1,225 level in the morning, then trail off slightly to close at $1,224 as the dollar index stayed softer, near 96.8.

And finally, to end the week, the dollar strengthened once again as the market eyed the weekend’s G-20 meeting.  That pushed gold down to $1,217 by 9 a.m. before it recuperated to close at $1,222.

But now that the G-20 meeting ended with a new tariff crisis safely averted, the price of gold could see a nice boost as we close out the year.

Here’s exactly where I see gold prices heading before the end of the year…

Where the Price of Gold Is Heading Next

Let’s first turn to the dollar.

Despite recent DXY strength, the relative strength index and moving average convergence divergence momentum gauges have been clearly trending downward the entire month of November.

That strongly suggests the dollar will have a tough time climbing and setting a new high from here.

I’ve outlined these downward dollar trends in the chart below…

I think as the market prices in the expectation of the next Fed rate hike in December, the dollar’s downward momentum will speed up. If it plays out that way, gold should benefit.

Last week, I pointed out that gold appeared to be forming an ascending triangle pattern…

Despite the recent price dip, gold recovered and regained its level above the 50-day moving average.

Still, gold needs to get back above $1,240, as I had suggested, for a meaningful rally to take hold. That’s still my first target, while a break below $1,210 – and especially below $1,200 – would be bearish.

As we approach the next Fed rate hike on Dec. 19, gold could still continue to consolidate around the 50-day moving average.

If a U.S.-China trade deal approaches reality, then gold should benefit as the dollar weakens.

Remember too that in the last three years, each time the Fed raised rates in December, we saw gold rally.

In my view, that’s likely again this year, as the next hike becomes a reality.

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