Monthly reviews

Last gold session in January indicates that we are at the verge of corrective downward movement

Another month of trading for the strategic gold market has passed. First, and this is the main detail, January turned out to be very successful for gold. During the first month of 2018, the gold market added 3.1%, having strengthened from the $1301 level to the $ 344 level. Our January monthly forecast was fully justified. In the gold review, we talked about the positive start of 2018 and the consolidation above the strategic level of $1,300, which opened the way to 2017 highs. (levels $1352). In January, gold strengthened to these levels, and was able to update local highs, reaching a new mark at $1366. The market failed to gain a foothold at these levels (this 1360 historical level is not very easy to handle, but more on that later). Several factors supported the gold market in January: the weakness of the US currency, the halt of the work of the US government, the prospect of unleashing the "currency wars," and perhaps a new factor - the uncertainty of cryptocurrencies future which led to a large bitcoin sale-off. It is interesting that the last January trading day was extremely volatile for gold. This always happens when the day is full of statistics and information, as bulls and bears fight for the months’ close levels.

Inside the day (Wednesday, January 31) gold price traded at $1332.30- $1347.36 and closed at $1344.66. The month was not closed at the maximum, which allows us to say that we will see a period of correction and gold sale-off ahead. But first things first. The last Fed meeting under the leadership of Janet Yellen did not give any surprises to the markets, and no one expected anything. The attention of the markets has long shifted towards the new head of the Fed, Jerome Powell, who will take all the basic decisions in the future.

Fed kept the rate in the range 1.25-1.50%, and is going to continue the cycle of rate hike in the future. This year, the US Central Bank predicts three rate hikes, and two in the next year. It is already clear that 2018 will be more hawkish than 2017. According to the accompanying statement of the Committee on open market, the Fed is going to raise rates already at the March meeting, which will be held on March 20-21 under Jerome Powell’s leadership. Market participants now estimate the probability of March rate hike at 75-78%. This means that USD dollar will move to gain and this strengthening can be swift. This is a negative medium-term signal for gold.The dynamics of gold for the most part still depends on the dynamics of the dollar. In January, USD dollar lost 8%, and is now at the levels of 2015.

It is interesting that yesterday (January 31, Wednesday), USD dollar was able to reverse the daily trend of decline, and after ADP released data on the US labor market from, USD went to the strengthening.

What caused the strengthening of the US currency is not entirely clear - the decision of the Fed, or unexpectedly good ADP data that increases the chances of strong data on US labor market report, which is released on Friday, February 2. Both of these factors could work together. In any case, we have two factors: oversold dollar and the more hawkish mood of Fed and entire market. Both factors are medium-term negative for the gold market. On the side of the gold market, geopolitical tensions may play out, but during the winter Olympics, it seems that this kind of risks are not expected at all.

Technically, gold market chart is also not favorable for the continuation of further growth. On Monday, January 29, gold fell under strong pressure and declining, the market broke through the upward mid-term support (growth momentum from the level of 1240), and has been trading in a narrow consolidation range of $1330- $1345 since then. The nearest support is located at $1320- $1325. In case of USD dollar corrective upward movement, we can expect a decrease down to these ranges, to the level of $1317 (38.2 FIBO). Confident fixation above 1345-1350 will create a springboard for the storming of local highs in the $1360- $1366 zone.

In addition, the current local market highs (1360-1365) is a zone of long-term resistance. The market approached this level twice - in July 2016, then the test in September 2017, and finally the current touch in January 2018. History teaches us that this level is not very easy to break through. On the other hand, strong historical levels are most often taken at the third time. After correction.

In conclusion, amid oversold USD dollar and stronger Fed's hawkish sentiments, we expect an upward USD correction and a corresponding pressure on the gold market. Most likely we will see a strong  gold corrective movement in February, the immediate goal of which will be the levels of $1320- $1317, and possibly testing  the strategic level at 1300. After that, the market will unfold and move to storm strategic level at $1360.

Good luck in your trading!