Gold looks poised to test the monthly-high ($1279) as global equity prices come back under pressure, and the current environment may fuel the recent strength in the precious metal as the bullish momentum appears to be gathering pace.

TOPSIDE TARGETS REMAIN ON RADAR FOR GOLD AS BULLISH MOMENTUM PICKS UP

Gold prices remain bid as the ongoing U.S. government shutdown drags on risk appetite, and the uncertainty surrounding fiscal policy may ultimately push the Federal Open Market Committee (FOMC) to endorse a wait-and-see approach at the next interest rate decision on January 30 as the gridlock in Congress drags on the economic outlook.

Even though Federal Reserve officials forecast a longer-run interest rate of 2.75% to 3.00%, Chairman Jerome Powell & Co. may come increased under pressure to conclude the hiking-cycle ahead of schedule as policymakers ‘see growth moderating ahead.’ In turn, Fed Fund Futures may continue to reflect diminishing bets for an imminent rate hike, with the central bank now expected to stay on hold throughout the first-half of 2019 especially as the ongoing shift in U.S. trade policy clouds the outlook for global growth.

Waning expectations for higher U.S. interest rates are likely to keep gold prices afloat, and the recent pickup in volatility appears to be spurring profit-taking behavior as bullion trades at six-month highs.

The IG Client Sentiment Report shows the index narrowing from an extreme reading, with 76.8% of traders now net-long compared to 78.5% last week, while the ratio of traders long to short stands at 3.31 to 1. The number of traders net-long is 0.5% higher than yesterday and 5.5% lower from last week, while the number of traders net-short is 5.0% higher than yesterday and 15.0% higher from last week.

The persistent tilt in retail interest casts a long-term bearish outlook for gold as it offers a contrarian view to crowd sentiment, but the recent decline in net-long interest is indicative of profit-taking behavior, while the jump in net-short position suggests traders are starting to fade the recent advance in gold as it comes up against a former-support zone.

With that said, the near-term outlook for bullion remains constructive as it holds above the 200-Day Simple Moving Average (SMA) ($1251) and extends the upward trend carried over from the previous month. Moreover, the Relative Strength Index (RSI) highlights a similar dynamic as it preserves the bullish formation and continues to flirt with overbought territory.

GOLD DAILY CHART

• Topside targets remain on the radar for gold following the close above $1260 (23.6% expansion), with the precious metal coming up against the former-support zone around $1279 (38.2% retracement) to $1288 (23.6% expansion).
• Recent developments in the Relative Strength Index (RSI) suggest the bullish momentum is gathering pace as the oscillator appears to be breaking above 70, but need a break/close above the $1279 (38.2% retracement) to $1288 (23.6% expansion) region to open up the next area of interest around $1298 (23.6% retracement) to $1302 (50% retracement).