Gold Failing To Capitalize On Weaker USD

The recent fall in the USD should have given gold traders and investors cause to celebrate given its strong inverse relationship with the precious metal, and they would have also have been cheered by the various commentators speculating that gold is perhaps now on the point of a dramatic rally higher. However, a cursory glance at the daily chart for gold shows the extent of the disconnect between this desire and the present reality as the precious metal continues to trade within a congestion region that stretches back to early October, and which is also close to the volume point of control which sits at the $1277.00 per ounce price point.

Moreover, the ceiling of the congestion phase is at the key psychological price point of $1300 per ounce, which the metal has tested on several occasions since late September, with these repeated tests responsible for the stiff resistance we see on the chart, and denoted by the three hatched lines. Meantime, the floor of congestion sits at $1260, where we also have the 200 ma which at least is providing the precious metal with a degree of price support.

From a technical perspective it is clear that any dramatic move higher for gold will require a break of the $1300 per ounce resistance supported by strong and rising volume, and until we see this we can expect the metal to remain constrained to its current price range.

From a fundamental standpoint any rally in gold is also being hampered by the lack of any meaningful inflation in the global economy, which is also a further reason why gold has failed to capitalize on the USD’s recent decline.