Despite being disappointed by gold's performance in 2018, one gold bull is keeping his risk-off filter on as he expects for the December gold rally to continue throughout the first quarter of 2019.
"Given the positive trading momentum in gold and the notable improvement in the technical picture (bullish crossover pattern on the daily chart since mid-December, monthly close above the 20 monthly moving average in December, and recapture of the uptrend line from the 2015 low since the start of 2019), I expect the rally in gold prices to continue in the first quarter of the year," Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post on Tuesday.
The macro environment is finally looking positive for gold, especially when compared to last year, Mikanikrezai said, highlighting weaker U.S. dollar and a less aggressive Federal Reserve as the primary drivers.
"This year, the maturation of the U.S. economic cycle, which just turned 10 years old, is set to result in a weaker dollar and lower U.S. real rates, judging by historical standards. As such, macro forces should turn friendly again for the yellow metal," he wrote. "This induces me to maintain my bullish view on gold for 2019."
The ETF investment demand is also expected to help gold prices out following a sharp drop in 2018.
"Monetary demand for gold should rise strongly in Q1 2019 due to gold's insurance qualities. Trading momentum is positive for gold, signaling a continuation of the rally in near term," Mikanikrezai said.
"Although the financial markets have stabilized recently due to a more â€˜careful' Fed, volatility is likely to trend higher, and episodic bouts of sell-off are to be expected in the course of 2019. This should produce a worrisome environment for U.S. investors, thereby supportive of monetary demand for gold," he added.
The analyst admitted that he was discouraged by gold's performance last year, aside from the boost traders saw in December.
"Despite a strong gain of 5% in December (and 7% in Q4 2018), gold delivered a negative performance of 1.6% last year," he said.
Such poor performance was blamed on a negative macro environment, according to Mikanikrezai, including ever-higher U.S. dollar and a tightening of the U.S. monetary policy.