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Amid all the bad news, gold continues to glitter

BAD news has been good news for gold, it seems. Gold prices have been steadily on the rise amidst a backdrop of tumultuous events like the recent flip-flop over UK's parliamentary vote on Brexit that was postponed. This escalated to a no- confidence ballot aimed to oust the current UK Prime Minister Theresa May - a hurdle that she crossed.

The European Central Bank also contributed by sharing its view of lowering economic growth projections for the Euro zone in its recent conference. Italian budget deficit woes as well as the French yellow-vest protests further added to the onslaught of negative news.

The price of gold did fall slightly due to the release of fresh interest rate hikes by the US Federal Reserve during the recent FOMC meeting, which saw them raise US interest rates by another 25 basis points, with a targeted two more hikes projected in 2019.

Following the release of the rate hike decision, gold prices came off their high of US$1,258 to US$1,243 per ounce at the close. However the overall trend of gold prices continues to be on a steady upward trajectory.

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Over the last five months, gold prices have risen from a year's low of US$1,160 per ounce without any sign of this trend abating. Looking at the daily gold price charts, there is an upward equidistant channel that was established starting from the early weeks of August 2018, which is still being respected as the price of gold continues to move firmly within its upper and lower confines.

In the past week, the price of gold has travelled towards the 200-day moving average. Gold prices did briefly extend above the 200-day moving average before the rate hike by the US Federal Reserve brought prices just below it. There are also signs of a golden cross where the 50-day moving average turns upward to cross above the 200-day moving average.

Furthermore, by placing in a stochastic indicator to the charts, we see that gold prices are within the overbought region. This is indicative of gold prices currently testing the upper band of the equidistant channel and a near term consolidation or retracement is expected upon rejection of the upper band.

If the market continues without any surprises in the final week of the year, gold will look to end 2018 by climbing back up to US$1,262 per ounce which is a 50 per cent Fibonacci retracement based off the recent year highs and lows of 2018 at US$1,160 per ounce in April and US$1,366 per ounce in August, respectively.

Overall, gold for the short to mid-term looks poised to gradually plod upwards within the equidistant channel. Unless the momentum of gold prices changes, suddenly causing it to break through the channel, either above or below, we expect gold prices to test the US$1,262 per ounce levels.

  • The writer is senior strategist, Phillip Futures
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