Gold's Pattern of Higher Lows Continues

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Gold is a metal that continues to intoxicate the human condition. For thousands of years, people all over the world have embraced the yellow metal, and it has served as a store and symbol of wealth and security. Gold is both a metal or commodity and a currency or means of exchange. The value of gold is repeatedly in the bible, both old and new testaments, as money. Today, gold is no longer officially the financial backbone that provides paper currencies with comfort as it did during the days of gold standards. However, central banks around the world continue to hold the metal as part of their foreign currency reserves. In the history of the world, estimates are that around 165,000 tons of the yellow metal has come from the crust of the earth. Central banks hold more than 33.6 thousand tons amounting to more than 20 percent of all the gold mined throughout history.

Over the past three years, the price of gold has established a pattern of lows in December which leads to a rally each new year. The yellow metal is highly sensitive to changes in the value of the U.S. dollar as it is the world’s reserve currency and the benchmark pricing mechanism for most commodities, gold included. At the same time, the price of gold also tends to react to changes in interest rates as it has a long history as a barometer for inflationary pressures. When real interest rates increase, the cost of carrying commodities like gold increases and the prices tend to move lower. However, when interest rates increase because of inflation, gold tends to shine brightest.

The final month of 2015, 2016, and 2017 were times when the U.S. Federal Reserve increased the short-term Fed Funds rate by twenty-five basis points. Since the U.S. central bank has acted a total of five times since liftoff from zero percent rates in 2015, the majority of rate hikes have come in December. Perhaps that is why gold has found itself at lows during the final month of each of those years. When the pressure is off in January, the price seems to recover, and each of the past three years, gold has made a higher low. 

Source: CQG

As the weekly chart of the price of gold shows, the price fell to a low of $1046.20 in December 2015. The following year during the final month, it found a bottom $77.70 higher at $1123.90 per ounce. In December 2017, gold’s low was at $1236.50, $112.60 above the previous year’s nadir.

Gold has been making higher lows for the past three years, and after trading to a high of $1365.40 on January 25, the yellow metal could be approaching a test of critical technical resistance at the 2016 high of $1377.50. The pattern of higher lows in gold has been firmly in place since late 2015, and it is possible the metal that glitters will head for a higher multiyear high soon.  


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