• The gold price had the best January since 2015 but has now corrected $100
• While inflation cools, gold price climbs
• Both bulls and bears have a case

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The gold price has rallied since last October in line with the dollar’s weakness. The dollar index (DXY), which tracks the dollar’s weakness or strength against a basket of currencies, completed the largest three-month drop in January since 2009.

Naturally, the price of gold denominated in US dollars surged. It traded close to the pivotal $2,000 level before correcting more than $100 from February highs.

Gold chart by TradingView

Gold had the best January since 2015

Gold price outperformed in January as the dollar declined. As a result, it had the best January since 2015. Moreover, January completed the best three months since 2011 – quite a performance.

Will we see further advance in February?

The technical picture still indicates that gold price is in a consolidation area between $2,000 and $1,700. Therefore, until we see a clear break of either the upside or the downside, the chances are that the consolidation continues.

Historically, gold has acted as a hedge against inflation. In other words, when inflation climbed, the price of gold climbed too. As such, it protected portfolios.

But things changed exactly when inflation rose to a four-decade high. Because investors bought the US dollar as the Fed hiked the interest rates, gold did not act as a hedge against inflation.

Now that inflation is cooling, the gold price rallied. Wouldn’t it be ironic to see the price of gold making new highs while inflation cools down?

A daily close above $2,000 would trigger more upside while the bearish bias persists as the possible double top remains valid. In other words, despite the last month’s rally, the price of gold did not make any significant break. So both bulls and bears have a case here.

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