As Dow Limps into the New Year, Gold Is Regaining Its Shine

• Gold peaked at $1,529.00/oz on Tuesday, the highest in over three months.
• U.S. stocks declined for a second consecutive day, with the Dow losing as much as 106 points.
• U.S. dollar index plunges to fresh six-month low.

Precious metals and stocks diverged on Tuesday, as demand for haven assets fueled a fresh three-month rally in the price of gold. Bullion has rallied in each of the past six sessions, putting it one step closer to a major technical breakout.

Gold Extends Rally as Dollar Lags

February gold peaked at $1,529.00 a troy ounce, gaining as much as 0.7% on the Comex division of the New York Mercantile Exchange. The precious metal was last up 0.3% at $1,523.60, the highest since Sept. 23, according to Bloomberg data.

Bullion has gained in six straight sessions and has recovered 4% from the early December swing low near $1,460.

A sharp drop in the U.S. dollar provided gold with another catalyst on Tuesday. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of six currencies, fell 0.3% to 96.44. DXY maintains a 52-week low of 95.03.

Although gold and silver usually trade in lockstep with each other, the grey metal failed to keep up on Tuesday. Silver futures were last down 5 cents, or 0.3%, at $17.95 a troy ounce.

Stocks Backpedal

After months of record-setting gains, U.S. stocks have been unwinding some of their gains this week. As CCN.com reported on Monday, stocks are under pressure due to overvaluation concerns and fresh calls for a steep correction through the first half of 2020.

The Dow Jones Industrial Average (DJIA) briefly fell more than 100 points on Tuesday. It was last down 0.1%.

Equities are wrapping up one of their best years in decades thanks to ample intervention by the Federal Reserve and positive trade-war news from President Trump. Stocks rallied to fresh records in December after President Trump and Chinese officials announced they had agreed to an interim trade deal. The ‘phase one’ trade deal, announced more than three weeks ago, has yet to be signed.

Despite hovering near record highs, stocks are vulnerable to a sharp pullback in the new year. Scott Minerd of Guggenheim Partners says the current market environment is similar to the one that preceded the 1998 correction. That’s when the S&P 500, over the span of 45 days, plunged nearly 20%.

What makes the two periods so similar is ample Fed liquidity, inflated stock valuations and an unhealthy appetite for speculation against a backdrop of low unemployment and rising business confidence.