What’s Happening?

After the US election, a massive honeymoon trade crushed gold (and the Japanese Yen for that matter) as capital flooded out of defensive havens into risk markets. Since the inauguration, however, reality has started to creep back in with traders recognizing that major policy changes in the US could cause significant economic disruption and uncertainty. On top of this, the future of the EU has become a hot topic between Brexit, the French and other elections and Greece moving back on the front burner.

This week features a lighter economic and earnings calendar and because of this, political developments may capture more attention from traders. Rising political uncertainty in several areas could keep interest in gold and other defensive havens active through the week.

Technicals:

Gold appears to be in the process of breaking out of a big cup with handle base, which is a sign of renewed accumulation. Following the completion of a big saucer bottom between $1,120 and $1,200 between November and early January, the handle portion (a smaller, higher saucer bottom) formed between $1,200 and $1,220 over the last couple of weeks.

Monday’s breakout over $1,220 completes the basing pattern and signals the start of a new uptrend with the RSI breaking out of a downtrend confirming that momentum is accelerating upward again.

Next potential resistance may appear near $1,229 a Fibonacci level then a Fibonacci cluster between $1,250 and $1,255. Support rises toward the $1,220 breakout point from $1,211 a Fibonacci retracement level. 

Fundamentals

There are a number of factors and potential events that could influence gold in the coming days:

First uncertainty over the political direction of the US and what it could mean for the economy continues to grow. In the last few weeks, President Trump has levelled trade and/or currency manipulation accusations against several countries including China, Japan, Mexico and Germany (just to name a few) and managed to pick a fight with Australia while walking away from TPP, indicating the US-EU deal as dead in the water and calling for renegotiation of NAFTA. In addition to this, more political disputes like the one brewing with Iran over missile testing. Overall, political volatility in the US appears to be growing with the potential for something to flare up at any time, generally increasing interest in gold.

Events in Europe could also keep gold active. In the UK, more debate around the Brexit bill is underway, but the bigger focus is on the continent. Signs of the potential for fracturing in the EU continue to grow with the French election campaign starting and the current leader in the polls, Marine Le Pen calling for France to pull out of the Euro. Meanwhile, German Chancellor Merkel’s party has lost their lead in early polls heading toward this fall’s election. Greece also continues to simmer away with a report on its debt from the IMF due this week. Here too, there is an element of unpredictability and a sense that anything could break any time, renewing interest in gold.

Also as we move through February, inflation reports could have an impact on gold trading. Gold has traditionally been a hedge against inflation and inflation has been rising with oil prices currently about double where they were a year ago, and copper climbing lately too.