Gold prices in 2018 are already gaining thanks to the “January Effect” I told you about last week, and the government shutdown this week won’t slow them down.
After breaching the $1,300 level on the very last trading day of 2017, the price of gold has pushed even higher in 2018.
Editor’s Note: 10 Reasons Why Gold Could Hit $3,000 in 2018
The yellow metal peaked at $1,343 early last week (Tuesday, Jan. 16). That marked a four-month high as the gold traders realized central banks around the world were likely to start “catching up,” which means raising rates as their economies begin improving.
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Ongoing weakness in the U.S. dollar has also supported higher gold prices, and I don’t see that trend ending anytime soon. Rather, I think an even lower dollar lies ahead and should help fuel further gains for the precious metal.
And a recent Commitment of Traders report shows money managers have been adding to their long gold futures positions as they follow its price higher.
The Price of Gold Last Week Hit Its Highest Point Since September
After a strong start last week, with gold hitting a high of $1,343, the metal seems to have moved, at least temporarily, into consolidation mode.
On Monday (Jan. 15), gold opened at $1,342 as the U.S. Dollar Index (DXY) fell below previous support levels to fresh multi-year lows. The DXY had been working its way lower already on Friday, but Monday brought fresh lows that sent commodities soaring. The DXY dropped to 90.43 by 8:00 a.m. and meandered around that level through the day. After a strong open, gold gave back $2 to close at $1,340.
Then on Tuesday (Jan. 16), gold profit-taking became the order of the day, as the DXY clawed back slightly. Dollar-buying helped push the DXY back to 90.63 by 8:00 a.m., with gold opening at $1,335. Renewed afternoon weakness in the dollar pushed the DXY back to 90.47 by the close, pushing gold prices up to $1,338.
Another small bout of dollar-buying sent the DXY higher, to 90.77 by 8:00 a.m. Wednesday (Jan. 17), and gold backed off to $1,335. But an afternoon DXY rally to 91 caused gold to tank after 2:00 p.m., falling to $1,327 by the end of New York’s trading day.
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But the dollar saw the most action on Thursday (Jan. 18). Check out how steep the DXY fell…
The dollar’s decline on Thursday brought a small rebound for gold prices. At 8:00 a.m., the DXY retreated to 90.60, and gold opened at $1,328. The dollar weakened even more as the day progressed, as did gold, which backed off to close at $1,326.
On Friday (Jan. 19), gold finally benefited from the dollar’s weakness at the open, when the DXY was at 90.47, helping gold start out at $1,335. But the DXY was bouncing back from early morning lows and kept climbing. By early afternoon, it had reached 90.60, pushing gold back to about $1,333 by 2:00 p.m.
Despite the DXY’s volatile week, it’s trending down over the long term. The DXY is down over 10% since this point last year.
And that means last week’s gold price high will be the first of many this year.
Here’s where I see gold prices reaching in the next month and by the end of the year, even with the government shutting down…
Gold Prices in 2018 Can’t Be Slowed by a Government Shutdown
The sideways action of gold in the last week is little surprise if you’ve been following me in these updates.
Despite the sell-off in the dollar, gold showed signs of consolidating. But I’m not worried. Last week’s profit-taking came after gold surged nearly $100 per ounce higher in a matter of days. Traders taking some of those gains is to be expected, and now we’re ready to see even more gold buying.
The dollar’s decline will continue to influence gold, and I believe the dollar will continue trending downward.
Since breaking down below my target of 91.5, the DXY has lost another 100 basis points.
I could certainly see the DXY weaken further, to 88, before hitting some level of support. If that plays out, then gold may see a further push higher.
Gold has already pulled back from a peak of $1,343 last week, and we may get a consolidation in the $1,300 to $1,340 range, especially if the dollar also moves sideways for a short period before working its way lower.
With the dollar bouncing back slightly and gold looking overbought (the RSI and MACD momentum indicators have rolled over), I’d expect gold to spend at least a little time digesting its recent gains.
A government shutdown in itself may do little to affect gold prices, so I wouldn’t read much into any near-term movements should that happen.
Meanwhile, according to Bloomberg, this gold rally has drawn enough money into gold holdings worldwide to reach levels not seen since 2013. Like I’ve said before, the gold bull is back.
Once gold breaks out of range past $1,340, look for $1,350 as early as next month, with a test of the 2016 high at $1,375 by mid-year. I think we’ll see gold sail past $1,400 and set new multi-year highs before the end of the year.
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