Comex gold traded at a three-month high early Tuesday morning at $1,314.50, lengthening its run of daily gains to eight consecutive days. On December 21, the yellow metal closed at $1,270.60, and at this morning’s high trade is up nearly 3.5% since then.
The U.S. dollar index, which measures the strength of the greenback against a basket of six major currencies, was down 0.36% this morning at 91.66, its lowest level in three-months. For the year the dollar index fell 9.8%, its largest decline since 2003.
As it stands, the same three-month period saw gold rise and the dollar fall, which is the way the markets are expected to work. Gold prices denominated in dollars rise when the dollar weakens because it takes more dollars to buy the same amount of gold.
What is not typical is a rise in gold prices along with a surging equities market and a monetary policy that included three interest rate hikes in the year and the promise of three more in the new year. Ordinarily if the Federal Reserve signals that interest rates will rise, we might expect gold prices to flatten, if not drop.
That’s not what’s going on now. Jeffrey Halley, a senior market analyst at Oanda, said in a note cited by Bloomberg:
As global complacency over the trajectory of U.S. rates continues to be astoundingly low, precious metals in general should continue to benefit. The old adage that the market can stay irrational longer [than] you can stay solvent appears to be alive and well in the gold market at the moment.
Gold’s relative strength index in Singapore this morning was 71.3, up from Friday’s level of 69.1. Anything over 70 usually indicates an impending price decline. Halley commented, “The relative strength index is now at very overbought levels.”
The Fed releases Federal Open Market Committee (FOMC) minutes from its December meeting on Wednesday, and the report on nonfarm payrolls is due Friday. Maybe that will siphon off some of the irrationality in the gold market. But would you want to bet on that?