Gold has been in use as a means of exchange for more than 2000 years. In all the major religious and historical books, the role of gold as an important and precious metal has been prominent.
Today, the role of gold as a currency has changed. In fact, most people who own gold don’t own it because of its use as a currency. Most people hold gold as a safe haven or as an insurance policy. They believe that its value would increase if the world system as we know it suddenly collapses.
As a result of this, gold tends to be inversely correlated with the dollar. In this, whenever the dollar goes up, gold tends to fall. The chart below shows the price movements of the dollar index and gold for this year.
In the past one month, gold has largely traded sideways as the dollar has moved higher. This is likely to change this month. This is because the bull run on the dollar this month could fall as other countries’ central banks change their projections. Yesterday, the Australian central bank pointed to a rate hike either this year or in 2019. The ECB is expected to wind down the easy money policies. The BOJ too could signal a potential rate hike in mid-2019. While the Fed will probably raise rates too, chances are that traders will likely be on the side of other currencies.
Gold is now trading at $1297. This is lower than the $1325 price it was less than a month ago. As shown below, gold has formed a symmetrical triangle with the convergence being closer to the current price of $1297. This means that the metal could break out in either direction. Fundamentally, it will most likely break out to the upside direction as traders move to gold. If it does, traders should watch out for the price to reach at $1310, which provides an important resistance.