While the gold price reached a one-month low today (Monday, Oct. 2), it will rebound nearly 10% before the end of the year…
Last week, when the gold price rose back above the $1,300 level on Monday, Sept. 25, it was little more than a fake-out.
Although the rebound appeared promising, gold continued lower the rest of the week to close out Friday, Sept. 29, at $1,285. That marked a weekly loss of 1% from the Friday, Sept. 22, close to Sept. 29. It’s moved even lower today to a one-month low of $1,276.
The decline came as investors moved away from gold and into stocks following the release of Trump’s tax plan on Sept. 27. The plan’s highlights include cutting the corporate tax rate from 35% to 20% and reducing the current seven tax brackets down to three.
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As the Dow Jones gained 0.5% from the release to the end of the week, the U.S. Dollar Index (DXY) got a big boost. Although the index initially fell on Wednesday after the news, traders and investors saw the planned tax cuts as a boon to the American economy. This has lifted the DXY from 93.36 on Wednesday to 93.50 today.
Additionally, Federal Reserve Chair Janet Yellen also announced last Tuesday that strong jobs readings have increased the Fed’s urgency to raise rates. The central bank has said it expects unemployment to fall from 4.4% in August toward an even 4% – the lowest jobless rate since 2000.
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All of this dragged the gold price back below $1,300, where it has been since, confirming my view that the current rout isn’t quite over yet.
I expect the oversold dollar to continue its bounce from the two-and-a-half-year low of 91.35 seen on Sept. 8. Since gold is priced in the dollar, any rise in the currency would lower demand from users of other currencies, which could limit any near-term gains in the price of gold.
But technical gold price indicators point to a recovery before 2018. Today, I’ll show you my bold and bullish prediction for the metal through the end of the year.
First, let’s closely examine gold’s 1% drop last week…
Gold Price Sees a Weekly Decline of 1% (Sept. 22-29)
After closing at $1,298 on Friday, Sept. 22, the price of gold bounced sharply higher on Monday. It opened lower at $1,294 but climbed higher throughout the day despite the DXY rising from 92.17 to 92.65. Gold prices closed the session at $1,312 for a gain of 1.1%.
Tuesday brought a reversal as the dollar came back strong on the back of Yellen’s hawkish interest rate talk. The DXY climbed back above 93 for the first time in a month. Gold sold off, opening at $1,302 and closing at that same level for a 0.8% loss.
The gold price plunged below $1,300 on Wednesday, Sept. 27, after Trump released his new tax plan. The metal opened at $1,289, trending lower from there and eventually settling at $1,288. That marked a 1.1% decline on the day even as the DXY fell from 93.97 to 93.36.
Here’s how the dollar performed last week…
On Thursday, Sept. 28, gold leveled off as the DXY fell toward the 93 level. The gold price opened lower at $1,283, but it gained throughout the session to settle at $1,289 for a small 0.1% rise on the day.
But the weakness returned on Friday despite the dollar moving sideways around the 93.10 level. It seemed that the DXY was digesting its gains for the week. Gold prices opened at $1,288 and fell from there to settle at $1,285. That marked a 0.3% decline for the day and a 1% loss for the week.
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And the gold price today (Monday, Oct. 2) is kicking off the new month on a weak note. It’s currently down 0.7% and trading at $1,276 – the lowest level since Aug. 8.
As I mentioned above, I think the price of gold is in for more near-term weakness. The dollar is clearly gaining momentum, up to 93.50 today from the low of 91.35 on Sept. 8.
But I see this as just a dead cat bounce – a brief rebound before resuming its decline. Despite the DXY’s recent gains, it’s down over 9% this year.
Here’s why I expect the dollar to fall before 2018 – and give way to a strong gold price rebound…
My Bullish Gold Price Forecast for the Rest of 2017
To see where gold could first head in the short term, we need to look at its technical indicators, particularly the relative strength index (RSI) and moving average convergence divergence (MACD) indicator (both highlighted below)…
Gold has just crossed down through its 50-day moving average of $1,296. Both the RSI and MACD indicators confirm this downward trend. And both have room to move lower still before gold reaches oversold conditions.
Meanwhile, the dollar looks to have put in the higher low, with the DXY having tested the 91.80 level as I detailed for you last week…
Just as gold has crossed down through its 50-day moving average, the DXY has crossed up above its own to establish a higher low. Both the RSI and MACD confirm this uptrend.
From here, we could see a bit more pressure on gold prices as the dollar continues its climb. If that happens, look for gold to dip into the $1,260 to $1,280 range before bottoming.
Interestingly, ABN Amro Bank echoes my conclusion. Georgette Boele, a senior precious metals analyst with the bank, predicts in a recent report that the dollar will keep climbing in the short term. She says this will likely drag gold to as low as $1,250 per ounce.
But after that, the price of gold is poised to strongly recover. I think gold will easily retake $1,300, then conquer $1,362 this fall and head toward $1,400before 2018. A $1,400 gold price would mark a 9.7% increase from today’s price of $1,276.
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