09:25, 04 January

Surges to Six Month High on Rising Fears of Economic Slowdown

In the last couple of weeks gold has surged strongly higher to a six month high around $1295 after enjoying some solid support from the key $1240 level and the $1200 level before that. For a couple of weeks before the push higher gold consolidated a little resting on support at $1240 after making a strong rally back towards this level, which had become significant when it offered reasonable resistance halting its climb a couple of months ago. After struggling with the resistance level at the $1240 level for several weeks, it fell back to another key level of $1200 where it bounced off strongly. The $1240 level provided some support in July and more recently pushed gold lower in October, so it is significant that it has now broken higher. The market will now be watching the $1300 level as this level was significant earlier last year.

For the most part through October and November last year gold had made a home in between two key levels of $1200 and $1240, and the markets were watching closely to see which way the next big move might be. Gold has received both support and resistance from the $1200 level in the last few months and didn’t appear to be in any rush to move too far away. The $1240 level was significant several months ago when gold received some short-term support there and subsequent resistance.

After falling for several years up until the end of 2015, which saw it fall from its all-time highs down to around $1050, gold has done well in the last few years to regain some of those losses. It had climbed back above $1300 on several occasions since then and generally in the last 15 months it had been steadily climbing higher from around $1100, currently looking to return back above the $1300 level.

According to the UBS Investment Bank, global economic growth is expected to slow down in 2019, as weaker earnings growth, tighter monetary policy and political challenges confront the world's major economies. UBS expects global economic growth to slow to 3.6% in 2019, after seeing a growth of 3.8% in 2018. "Our outlook is that U.S. growth will be constrained by ebbing fiscal stimulus and higher interest rates," economists at UBS said in a note. "The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses," the investment bank said. A major factor in 2019 will be a new era of tightening monetary policy among the world’s largest economies after a decade or so of stimulus. After extensive monetary stimulus programs, central banks are now keen to "normalise" such policies. Gold has enjoyed a solid boost by a falling U.S. dollar, falling equities and oil, as investors head for a safe haven. At the end of last year the a not-so-dovish rate rise indication by the Fed increased market conjecture that the country's economy may be running out of steam. The latest Fed move and subsequent comments fuelled further concerns about slowing global growth. Gold prices have behaved as you would expect during the recent period of uncertainty, rising as expectations of Fed tightening next year have been cut sharply and equities have sold off.