Gold prices in 2018 are already up nearly 2% on the year, and the biggest gains are still on the way…
According to an indicator called the “January Effect,” assets that start strong in early January tend to do well for the remainder of the year.
That’s exactly what’s happened with gold prices.
In just the first trading week of 2018, gold prices jumped $17, for a 1.3% gain. Helping it along were hedge funds and other speculators jumping onto the precious metals bandwagon as the U.S. dollar took a hit.
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Now, the price of gold just marked five consecutive weeks of gains, hitting a four-month high in the process.
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With such impressive momentum on its side, 2018 is shaping up to be a banner year for gold.
Today, I’m breaking down gold’s price movement over the last week, plus I’ll show you where gold prices are heading next…
Gold Prices in 2018 Are Extending 2017’s Gains
The start of the last trading week was flat to negative, as the U.S. dollar continued a small bounce higher.
On Monday (Jan. 8), gold opened at $1,318, just $1 lower than the previous Friday’s (Jan. 5) close. The headwind for the metal was the rising dollar, with the U.S. Dollar Index (DXY) rising above 92.3 by 8:00 a.m. It would maintain that level most of the day, yet gold still managed to close $2 higher, at $1,320.
On Tuesday (Jan. 9), the DXY’s rally intensified, rising to 92.6 for a good part of the day. That weighed on gold prices, which opened lower at $1,314 and declined on balance to close out at $1,312.
But a strong dollar sell-off came on Wednesday (Jan. 10), fed by a rout in the global government bond market.
A Bloomberg story said the Chinese government may be rethinking its massive hoard of U.S. Treasuries. That news fueled heavy gold buying prior to the New York’s market open, which pegged gold prices at $1,322. They then fell, but still managed to close at $1,317.
But the DXY really began to fall on Thursday (Jan. 11), which you can see right here…
On Thursday, dollar selling intensified, pushing the DXY from 92.5 at 7:30 a.m. to 91.8 by 10:00 a.m. Gold buyers came back into the market, lifting gold to $1,319 by the open and steadily higher to close at $1,322. With that, the dollar’s recent bounce increasingly looked like it was over.
Then, on Friday (Jan. 12), U.S. consumer price inflation came in slightly above expectations. But the dollar suffered another bout of selling, dropping below 91.5. Gold opened at $1,326 and popped to test $1,340 by late afternoon, as the DXY fell further to lows just below 91.
As the dollar continues to weaken, the price of gold will continue to rise in 2018.
Here’s my gold price prediction for the next month, plus my 2018 gold price forecast…
My 2018 Gold Price Prediction
I think the “January Effect” will see a strong follow-through this year, and gold will surprise many to the upside.
Despite the dollar’s considerable pullback this past week, I’m still not completely convinced its bounce is over. I say this because the futures market in the euro shows speculators are at an extremely bullish level; in fact, they’re at a record high, with the euro itself at a three-year high.
With the euro representing a 57.6% weighting of the dollar index basket, any significant pullback in the currency should help bolster the DXY. That being said, the dollar has broken down below my 91.5 target (the September low), so further weakness could easily come next. I expect the DXY to fall below 88 soon…
Meanwhile, gold is starting to look somewhat overbought and ripe for a correction, or at least a brief pause during its rally.
I expect to see the $1,300 level hold as gold’s price floor, unless a new bounce for the DXY materializes.
Next, look for gold to rise above the $1,350 level by the end of February and a challenge of the 2016 high at $1,375 by mid-year. In the second half of 2018, I think gold will test or even breach the $1,400 level.
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