Technicals:

Since peaking back in 2011, gold had been steadily trending lower over the last four years, but finally started to look really oversold and washed out with a successful double bottom test of $1,000 near the end of 2015.

Since the beginning of this year, gold has been on gthe rebound in a big way driving up from near $1,045 toward $1,265 before pausing for a much needed rest. Over the last few weeks, gold has been working off an overbought RSI through a sideways consolidation phase shown by RSI holding steady just below 70 and the formation of a symmetrical triangle, a continuation pattern.

Last week, gold broke out of the triangle clearing $1,245 then rallied up through $1,250 and $1,265 on its way toward $1,280 before running into resistance and dropping back under $1,265. Support, meanwhile has moved up toward $1,250.

Although gold did manage to break out briefly, signs of exhaustion are growing. The new high in the price was not confirmed by the RSI, a negative divergence which indicates upward momentum slowing. Meanwhile RSI going overbought again suggests it may be due for a correction. This week, we should get a better idea if gold is ready to press higher or if Friday’s action was a buying climax.


Fundamentals:

A number of different forces have converged to drive higher since the start of 2016 and could act on gold to spark significant swings in the coming weeks.

1)    US Dollar: Gold’s declines through 2015 mirrored the gains made by USD over the same time frame. The US Dollar Index trading near 100.00 suggests traders have priced in several rate hikes this year. The big selloff in world markets that started 2016 caused some FOMC members to back away from their commitment to raising rates. Recent strong US economic data, however, put a March rate hike back on the table. Changing speculation about what the Fed may do at its meeting later this month could impact trading in Gold which usually trends in the opposite direction to USD.

2)    Defense or offense: Gold has historically acted as a haven for capital in times of market turmoil. In 2015, USD was the main haven used by traders but earlier this year, Gold and JPY became the preferred haven traders as cheaper alternatives to the strong Dollar. Recently, capital has been moving out of havens back into risk markets as stocks and oil recover. Significantly, gold’s rally late last week was not confirmed by similar action in JPY suggesting the move may have been a buying climax.

3)    ECB and the Euro: Although USD has reclaimed its status as the dominant adversary for gold over the last couple of years, EUR can also have an influence on gold trading. This week, the ECB has a meeting scheduled where it is expected to announce monetary policy changes following another review of its QE program. The street is expecting a 0.10% cut to its deposit rate, but after that it’s hard to say. More stimulus could drive EUR down against other currencies including gold, while less than expected additional stimulus could spark a rebound in EUR against other currencies including gold.