Gold rallied nearly 4% in December, mainly in the second half of the month, and recently moved to an intraday high of US$1,613/oz as the US-Iran confrontation unfolded. We believe there are a few likely reasons for the move:
- A technical breakout
- Bullish positioning in derivatives markets
- Light trading volumes
- Portfolio rebalancing at the end of 2019 especially as investors hedged risk asset allocations
- Federal Reserve (Fed) repo activity
- Increased geopolitical risk
A technical breakout
The gold price was at a pivotal level in early December, near the top of the 50-day moving average as well as a bullish pennant1 formation (Chart 1). As gold moved above US$1,500/oz and the moving average the breakout was confirmed, suggesting the price would move to the top of the pennant around US$1,575/oz – effectively where it topped out.