Gold prices edged slightly higher on Christmas eve on the back of a softening US Dollar and extremely low trading volumes due to the holiday season. The moves in the precious metal were rather insignificant and could be written off as probably some computer-driven trading which doesnt provide us much insight on the expected near-term direction.
Gold is geared to trade off of covid-19 headlines as the rollout of the Pfizer vaccine has begun in Europe and the US. Early reports on the effectiveness of the vaccine will help drive momentum in gold. However as concrete results may only be known in roughly 6 to 9 months, we can expect gold to trade in a rangebound pattern with investors likely unwilling to commit to betting for or against the metal given the actual context.
Monetary stimulus packages and the effects they have on inflation expectations will also be a point of interest for gold traders. With Joe Biden due to take office on January 20th, markets are eagerly waiting for his stance on further relief deals to keep the US economy afloat. Mentions of additional fiscal stimulus by the President-Elect may keep the US dollar under pressure and support gold prices in the medium term.
That said, an interesting point to note is that the relationship between the US dollar and gold prices appear to have been skewed recently. The traditional pattern of a lower greenback driving up gold prices hasnt held in the past 3 months with both curbs tanking to the downside where one would expect some degree of negative correlation to occur. Traders should be on the lookout for the normalization of the traditional pattern as it may present an opportunity to spot an early break in the trend.
(Spot Gold, chart Source: Tradingview 27.12.2020)
(Gold vs Dollar Index, chart Source: Tradingview 27.12.2020)
All in all, the right strategy for gold in the coming weeks will likely be buying the dips and selling the rallies as the metal will bounce back and forth in search of a clear direction. Traders may look to the range of 1,925 and 1,817 for guidance on the upper and lower bounds respectively.
Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.