Menu Close

Gold Price Forecast Sees Rise Before 2016 – Check Out the Charts

This is a syndicated repost published with the permission of Money Morning - We Make Investing Profitable. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Interest rates are an important factor in the gold price forecast, so it’s a good time to get an update on the yellow metal since the Sept. 17 Fed meeting pushed a rate hike down the road.

Interest rates are an important factor in the gold price forecast, so it’s a good time to get an update on the yellow metal since the Sept. 17 Fed meeting pushed a rate hike down the road…

Fed Chairwoman Janet Yellen failed to give clear guidance on when rates will be raised, except to say the first increase could occur at any future meeting. And she still expects it will happen in 2015.

Interest rates have been near zero since 2008. The Fed hasn’t seen the “right” conditions to justify even a minor initial rate hike.

Rates affect gold investing because gold, which offers no yield, competes with interest from bonds and dividends from stocks.

Here’s what the yellow metal’s behavior leading up to and right after the Fed decision tells us about where gold prices are headed next…

Gold Price Struggles to Break Out of Long Correction

gold forecastAt the start of 2015, gold rallied from about $1,200 to $1,300. Many investors hoped the correction dating back to 2011 might finally be over.

But that rally fizzled by mid-January, with gold giving up those gains to touch $1,150 in March.

Gold mostly went sideways until June and then weakened to just below $1,100 in July.

When markets experienced a strong correction in late August, gold kicked into gear and moved higher – then backed off once again.

Interestingly, its retest of $1,100 this time remained above that level in what now looks like a double bottom.

And while it’s still too early to tell, that action may have finally marked the end of gold’s long correction.

Now if we look more specifically at Friday, Sept. 11, price action in gold stocks was especially intriguing…

Gold Stocks’ Big Movement Ahead of Fed News

The Market Vectors Gold Miners ETF (NYSE Arca: GDX), which is a good proxy for major gold miners and royalty companies, touched its lowest price ever of $12.62 on Sept. 11. However, in a strong intraday reversal, GDX ended up on the day to gain 0.7%, 4.75% higher than that day’s low.

Let’s look at how the SPDR S&P 500 ETF (NYSE Arca: SPY), gold, and gold stocks performed from Sept. 11 until the Fed made its announcement.

gold chart forecast priceAs the above chart shows, stocks gained about 2% over the five days leading into the Fed announcement. Gold itself was also up about 2%, but most of that came on Sept. 16 and especially on the Fed news of no rate hike.

But gold stocks rose much more strongly in advance of the Fed news. By Sept. 16, they were up 6% over 4 days.

Now let’s look at the action on the day of the Fed’s announcement.

gold prices graph

As you can see from the above chart, as soon as news broke at 2 p.m. that there would be no rate hike, gold shot up from $1,118 to $1,128. Then, as Yellen spoke at the 2:30 p.m. news conference, gold gained further and continued to climb slowly but steadily through the rest of the trading session.

But the action in gold stocks was even more pronounced.

As news broke from the Fed, GDX popped 3%. GDX backed off a little as Yellen began to speak at 2:30 p.m., but it resumed its climb to close out the day with a 4% gain from its pre-2 p.m. level.

This erases any doubt that gold reacted favorably to the delay in interest rate hikes.

What’s really intriguing about gold and gold stocks’ reaction is how they seemed to anticipatethat the Fed wouldn’t hike rates at their September meeting by their gains in the four days before.

Gold Price Forecast After Fed Decision

With persistently low interest rates, gold’s competition from stocks and bonds may not be that mighty anymore after all.

The Fed indicated that weakness in the global economy caused its participants to vote against a rate hike. But if that weakness persists, it could keep the Fed from any kind of significant rate increase for some time.

And that could continue to bolster gold and gold equities and send prices higher.

After four years of correcting and forming what looks like a double bottom around the $1,100 mark, gold seems ready to resume its long-term secular bull market.

 

To get full access to all Money Morning content, click here

About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

Disclaimer: © 2015 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

The post Gold Price Forecast Sees Rise Before 2016 – Check Out the Charts appeared first on Money Morning. Reposted with permission.

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RSS
Follow by Email
LinkedIn
Share

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading