This year, the price of gold has declined by more than 5%. The price started the year at $1320 per ounce and reached a YTD low of $1160 in September. Since then, the price has slowly moved up to a high of $1250.
As you already know, gold is an interesting metal in that it is used mostly for investment purposes. Most people who buy the commodity do so to hedge against inflation and other major market happenings like disasters. The idea is that when there are uncertainties in the market, investors will move to gold as a caution. A contrary idea is that gold is a hedge against a stronger dollar. As such, when the value of the dollar increases, it pulls down the value of gold.
This year, global uncertainties have increased. These started with the ongoing trade conflict that threatens businesses from around the world. Other issues that arose this year were on the US decision to leave the Iran nuclear deal and the decision to abandon a nuclear treaty. The latter threatens the world with an escalation of the nuclear weapons development. All this has seen the level of global volatility increase as evidenced by the S&P VIX index that has risen by more than 50%. Therefore, the key conclusion that can be made is that gold is not a hedge against uncertainties. Instead, it has an inverse relationship with the dollar. This year, the dollar index has risen by almost 5%. This relationship is shown in the chart below.
From a technical perspective, gold’s price is along the 28-day and 14-day EMA while the RSI and MACD are moving down on the six-month chart. This is because in the past few days, the price of the metal has eased a bit after hitting the $1250 level. The next major movements will likely be caused by the Fed statement in the coming week. If the Fed sounds dovish, the pair may continue moving up and vice versa.