Gold is strengthening despite falling oil prices and the rising Dollar.
The Dollar Index is advancing toward a long-term target of 100 after breaking resistance at 90 in December.
* Target calculation: 90 + ( 90 – 80 ) = 100
Spot gold is testing resistance at $1300/ounce after breaking through $1250. Expect a rally to test resistance at $1400, but a change in the primary trend is unlikely. Reversal below $1200 would warn of a decline to $1000*.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
The most likely explanation for gold strength is the prospect of significant quantitative easing by the European Central Bank. Mario Draghi has called on the ECB to purchase € 50 billion of securities per month until December 2016 according to Bloomberg. With Japan and China already following the path of monetary expansion, concerns over the potential for a “currency war” are growing.
