Not surprisingly the gold market is starting out on a positive footing in the face of minimal weakness in the dollar as a weak Dollar appeared to be the main component behind last Friday's explosive rally. Perhaps fresh evidence of slowing in China, along with suggestions that the Chinese might have limited capacity to "pull out all the stops" and help their economy has sparked a layer of safe haven buying of gold and silver.

In fact even the temporary deal to reopen the US government has been called back into question following suggestions from President Trump that he doubts Congress can come up with a final deal that he can sign. The gold market is also seeing some support from favorable Indian gold demand news overnight where dealers reportedly cut their discount for gold in a sign that demand is strong enough to support higher prices. Even more surprising is the fact that Indian buying has been active despite hopes that a pre-election budget release next week could have delayed purchases to capture the windfall. In our opinion seeing Indian gold demand remain positive in the face of the sharp gains in prices is a very positive sign.

Unfortunately for the bull camp Indian gold imports (on a dollar value not volume) in December declined by 24.3% relative to year ago levels but that reading was obviously impacted by much lower 2018 pricing. There were also reports of positive Chinese demand with "premiums" up $2.00 to $3.00 dollars above last week and the trade is also expecting an increase in Chinese purchases into the Lunar New Year which begins next week.

In looking ahead, the markets will encounter a Federal Reserve Open Market Committee meeting and that is sure to offer a major pivot point for prices. While the February gold contract finally managed to break out above the prior "psychological resistance level" of $1,300, the bull camp might be somewhat disappointed if the market fails to close above that level again today.

Certainly gold saw the rally confirmed late last week by expanded trading volume, but there was also some liquidation in open interest and that might hint at concern for overbought pricing. We leave the bull camp with a slight edge, but also suggest the dollar will ultimately decide the near term trend in the event that the dollar index falls back to 95.00, as that could serve to establish February gold above the $1,300 level.

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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.