Gold has closed higher in the past eight sessions, closing at a three-month high of $1307 yesterday. In 2017, it gained by about 12% fueled by a dollar that dropped by more than 13%.
Gold is unlike other commodities. It is a precious metal found deep inside earth’s crust. It is found in plenty in countries like United States, Russia, South Africa, and China. Recently however, the number of gold reserves has declined as miners reduced Capex on exploration.
Gold is not used like other commodities. Investors and central banks buy most of the mined gold to store value while the rest is used in manufacturing ornaments. In essence, gold can be viewed not as a commodity, but as a currency or an insurance policy. People will often run to gold when the world comes crashing down.
Part of the reason why the stock markets outperformed gold last year was the level of volatility, which was at an all-time low.
This year’s rise is associated with several factors. First, Iranians have started the year with massive protests which threaten the current government. Some believe that a destabilized Iran could lead to an Arab Spring type of crisis. Second, there have been a growing rhetoric in the Korean peninsula with President Trump boasting of his large nuclear button. Third, investors expect inflation in the U.S to peak up fueled by the massive tax reform package.
As shown above, yesterday, Gold broke a major resistance level (in yellow) which is also the 50% retracement level as shown below.
Three potentially significant levels: $1328 (23.6% Fibonacci level), $1339 (a major resistance level), and $1357, which is a 4-month high.
On the downside, the $1296 level (50% retracement level), and the $1283 level which provides significant support should be noted.