Gold May Have Room to Run As Chinese New Year Looms

Gold May Have Room to Run As Chinese New Year Looms

  • Gold bullion tends to rise January and February before Chinese New Year (see table)

  • Gold is nearly 8% and $100 higher since Fed raised rates one month ago

  • Options traders are bullish and suggest gold has room to run (see chart)
  • Nervous in short term, positive in medium term - gold at $1,500 in 2018

From Bloomberg:

Gold’s breakneck rally eased this week, but tailwinds in both physical and paper markets suggest it’s got room to run.

Chinese New Year buying and option prices suggest the stars are aligning for the metal to extend its 6 percent gain over the past month.

“I’m always a bit nervous when gold prices rise this much, this fast,” said Mark O’Byrne, director of bullion dealer GoldCore Ltd. “But there certainly is healthy demand from China and the futures market -- I think we should break highs above $1,400 later in the year.”

Options traders are betting on at least another month of rising prices. They’re charging more for benchmark call contracts than for similar puts, and by the biggest premium since November. The bias, measured in implied volatility, has increased to about 0.6 percentage points.

 

 

Gold tends to do well in January and February. That’s when demand spikes in the biggest consuming nation, China. Over the past decade, the metal advanced by about 6 percent on average in the first two months combined. The Lunar New Year, which is often celebrated with gifts of gold in much of Asia, falls on Feb. 16 in 2018.

January has historically been gold's strongestStill, a technical indicator points to a rally that may have grown tired.

The metal, which reached a four-month high this week, crossed into 2018 with an eight-day rally, the longest string of increases since 2011. Now, it’s considered overbought, according to the relative-strength index, a gauge of momentum.

As gold futures are quoted in the U.S. currency, its upswing somewhat depends on whether the greenback’s losing streak continues.

Option prices signal that traders foresee the dollar falling over the next month against the euro, yen and pound. That’s good news for bullion: The 120-day price pattern is close to its strongest negative correlation since late 2012.

 

GoldCore Note

Gold is due a correction after its $100 rally since the Fed raised rates. A near 8% gain in a month is quite a move up in a short period of time and ordinarily one would expect a correction. Frequently a 50% retracement of the gains takes place. This could take us back to the $1,300 level which acted as resistance before. Previous resistance frequently becomes support.

We are always a bit nervous when gold prices rise this much, this fast. At the same time the sharp fall in bitcoin and crypto-currencies is leading to an increase in demand for physical gold and there is  robust demand from China ahead of the Chinese New Year.

We are a little cautious in the very short term but very positive in the medium term and see gold over $1,500 in 2018.

Related Reading

Fed Increases Rates 0.25% – Rising Interest Rates Positive For Gold

 Gold’s Positives – Rising Interest Rates and Negative Rates

 

News and Commentary

Gold flat as U.S. Treasury yields rise (Reuters.com)

Gold inches up, but heads for first weekly loss in six (Reuters.com)

Asian Stocks Rise, Even in Face of Climb in Yields (Bloomberg.com)

Gold suffers biggest one-day decline in more than a month | January 18, 2018 (MorningStar.com)

U.S. Stocks Mixed Following Wednesday’s Records (Bloomberg.com)

U.S. Stocks Mixed Following Wednesday’s Records (Bloomberg.com)


Source: Bloomberg

Gold ETF Holdings Surge as Cryptocurrencies Collapse (Bloomberg.com)

Don’t pile into property in 2018 (MoneyWeek.com)

Global housing markets are warning that the cheap money is running out (MoneyWeek.com)

Investors Turning To Gold As Inflation Risks Resurface: Rhind (Bloomberg.com)

2018 to be Good Year For Gold And Precious Metals (Bloomberg.com)

Weak Dollar Poses a $3.4 Trillion Question for U.S. Credit Markets (Bloomberg.com)

Gold Prices (LBMA AM)

18 Jan: USD 1,329.75, GBP 961.14 & EUR 1,088.40 per ounce
17 Jan: USD 1,337.35, GBP 969.45 & EUR 1,092.48 per ounce
16 Jan: USD 1,334.95, GBP 970.38 & EUR 1,091.32 per ounce
15 Jan: USD 1,343.00, GBP 971.93 & EUR 1,092.93 per ounce
12 Jan: USD 1,332.90, GBP 978.75 & EUR 1,099.78 per ounce
11 Jan: USD 1,319.85, GBP 978.14 & EUR 1,104.45 per ounce
10 Jan: USD 1,321.65, GBP 976.96 & EUR 1,103.31 per ounce

Silver Prices (LBMA)

18 Jan: USD 17.09, GBP 12.31 & EUR 13.96 per ounce
17 Jan: USD 17.21, GBP 12.49 & EUR 14.10 per ounce
16 Jan: USD 17.10, GBP 12.43 & EUR 13.99 per ounce
15 Jan: USD 17.12, GBP 12.58 & EUR 14.14 per ounce
12 Jan: USD 17.12, GBP 12.56 & EUR 14.12 per ounce
11 Jan: USD 17.01, GBP 12.64 & EUR 14.24 per ounce
10 Jan: USD 17.13, GBP 12.64 & EUR 14.27 per ounce

Recent Market Updates

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- Gold Prices Rise To $1,326/oz as China U.S. Treasury Buying Report Creates Volatility
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Comments

bobsmith5 Ima anal sphincter Fri, 01/19/2018 - 14:03 Permalink

Exactly, and once the Chinese New Year is over they will smash it right back to where it was before.  Just look at the long term chart in silver.  We are in the middle of a  trading range where 17.00 dollars is the price we were at 10 years ago.  The low is 14 dollars and the high is 21 of this suppressed highly controlled range, that proves beyond a shadow of a doubt, that the price is extremely controlled. 

Silver is the most important price of all for the bankers to suppress.  After ten years of massive liquidity injections in an attempt to stave off a global deflationary debt collapse, a federal debt of 20 trillion, silver and gold should have been doing exactly what bit coin and the stock market have been doing from the last run up of silver to 50 dollars and never looked back.

In reply to by Ima anal sphincter

bobsmith5 Fri, 01/19/2018 - 14:06 Permalink

The only thing that will make gold and silver act like they should is a massive systemic global monetary collapse and nobody knows when that will be, NOBODY!

DEMIZEN Fri, 01/19/2018 - 15:34 Permalink

gold looks like 80 yrs old wang striving to rally for one more last time. it may go up another 100 or so if couple of nukes hit the treasury dept.

silverserfer Fri, 01/19/2018 - 16:20 Permalink

its really not about the price of gold peoples. its about the rotation of ownership of physical gold. What type of people are selling to whom. The flow of the spice has been very consistent for 100's of years unfortunately.  The plebs that get brainwashed into selling their gold for paper to their debt masters is the real human tragedy. Gold is freedom and the only real way to have balance of power amongst the world. 

unfortunately those who have the gold know about the golden rule and are applying it vigorously.