The price of gold bottomed on 16th
August last year when the price reached a low of $1160. Since then, the price
has continued to move higher, making higher highs and higher lows. This week,
the price continued the rally to reach a high of $1215. This was the highest
level in eight months.
The recent rally on the metal is
associated with a number of factors. First, the demand for physical gold is
rising, especially in India where the wedding season is currently going on.
India is one of the largest buyers of gold jewelry especially for wedding
purposes. Second, in recent weeks, there have been consolidation in the gold
industry. Two weeks ago, US-based Newmont Mining announced that it would
acquire Canada’s Goldcorp. Previously, Barrick Gold announced that it would
acquire Randgold. Two years ago, South Africa’s Sibanye acquired Stillwater.
Investors believe that the acquisitions may lead to more efficiency in the
Third, investors are still
concerned about global growth especially on trade. This week, the leading
Chinese trade negotiator will be in Washington to discuss trade issues. While
traders are optimistic that the talks may yield to better results, they are
still cautious because of the underlying issues. For example, China will resist
measures to prevent their intellectual property theft from American companies.
Most importantly, traders are
paying close attention to the Federal Reserve, which is expected to reduce the
number of interest rate hikes this year. Indeed, the dot plot from the previous
meeting showed that there may be two rate hikes this year. This is two hikes
lower than those of the previous two years.
The chart below shows the
performance of gold in the past one year. The price has continued to remain
below the 21-day and 42-day EMA while the RSI has moved to the overbought
level. Contrary to this RSI number, there is a likelihood that the price may
continue moving higher. This is confirmed by the Stochastics indicator shown