Over the last week, the gold price has bounced back above the $1,200 threshold. With the metal currently trading at $1,251, it’s set to post a weekly gain of 1.7%.
The price of gold’s rally this week to its highest level since June 23 came mostly on the back of comments from Mario Draghi, president of the European Central Bank (ECB). Draghi said during the bank’s policy meeting on Thursday that the ECB had not yet formalized plans to roll back monetary policy stimulus.
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
This report tells why, and what to look for in the data and the markets. GO TO THE POST
The Bank of Japan (BoJ) also said its inflation expectations were not meeting targets, with the current 1.1% inflation rate below the previous forecast of 1.4%. The BoJ noted that a dovish monetary policy would persist for some time.
And that echoed what U.S. Federal Reserve Chair Janet Yellen said in her Congressional testimony last week, when she admitted the global inflation slowdown could call for an “adjustment” to the Fed’s policy.
Meanwhile, the U.S. Dollar Index (DXY) has declined 104 basis points over the last week, from 95.15 to 94.11. With that decline, the DXY has lost 8% so far this year.
So right now, considering the 1.9% rally over the last week, it’s clear that the recent $1,210 low for gold prices on July 7 have become the metal’s bottom. That means gold has nowhere to go from here but up.
I’ll tell you exactly how high I see the gold price heading in 2017 in a bit, but first, let’s take a closer look at its strength since last Friday…
Gold Price Set to Post a Weekly Gain of 1.7% (July 14-21)
After settling at $1,228 on Friday, July 14, gold prices opened higher on Monday, July 17, at $1,234. After some choppy trading in a narrow range throughout the day, the metal finally closed at that same opening level for a 0.5% gain over Friday’s price.
By late Monday, the DXY traded below 95 for the first time since Sept. 8, 2016, reinforcing its clear downtrend. That was great for the price of gold, which opened higher at $1,238 on Tuesday. It steadied higher throughout the session and closed 0.6% higher at $1,242.
Here’s a look at the DXY’s action over the last week…
Wednesday was the only down day, with the gold price opening just below the previous day at $1,241. After peaking at $1,243 early that morning, it fell to settle one dollar lower at $1,241 for a mild 0.1% loss.
Then on Thursday, July 20, as a result of Draghi’s dovish comments, the DXY sold off 104 basis points, going from 95.16 to 94.12 in just three hours. This boosted gold prices during the session, with the metal ultimately closing 0.2% higher at $1,244.
And the gold price today (Friday, July 21) continues to rise higher, up 0.5% and trading at $1,251. With that, gold is on track to post a weekly rise of 1.7%.
This week’s gains mark a change in sentiment for gold. Now that prices are up 3.4% from the July 7 bottom of $1,210, I think that momentum is poised to continue through the second half of 2017.
That’s why I see the price of gold reaching these higher targets by the end of the year…
My Bullish Gold Price Prediction for the Rest of 2017
As I said, sentiment toward gold is quickly becoming more bullish, and one way I’ve gauged that is through the Gold Miners Bullish Percent Index (BPGDM).
As this chart below shows, the index – which is used to measure overbought and oversold conditions in the mining sector – has turned up from below 20, which is the first sign that gold stocks could now be starting a new rally…
Generally, a BPGDM below 30 indicates gold is oversold. Since July 17, the BPGDM is up from a bottom of 17.5 to 21.43. While it’s still in a relatively oversold environment, that rise over the last four days shows buying sentiment is starting to increase. This is a bullish sign that gold prices could keep heading higher.
I’m also closely watching the DXY, which is near 94.05 today. The DXY is at the lower end of its trading range between about 94 and 102, where it’s been since early 2015…
If the DXY breaks down below 94 in a sustained way, the dollar could face a big sell-off. Since gold is priced in dollars and becomes cheaper for users of other currencies as the dollar weakens, any sell-off in the DXY would increase buying behavior and push gold prices higher.
And looking at prices themselves, we’ve already seen the initial gains I thought we might expect…
I said last week that a mild rally could bring the price of gold up to its 50-day moving average, near $1,235, and we’ve already surpassed that at today’s $1,251 level.
At this point, a small consolidation would not be a surprise, but I think the next target will be the $1,260 level, last seen on June 15. And remember, gold’s seasonal strength right now bodes well for higher prices.
Gold will have to break above $1,300 in a sustained way to confirm a new leg up, as it’s been trading between $1,200 and $1,300 since late January. But that’s only about $55 away, an achievable gain in just weeks, as the last week has shown.
In other words, gold prices could rise to $1,300 in the next few weeks. Beyond that, $1,400 isn’t out of the question by the end of Q4 2017.
The Bottom Line: The 1.7% gain in the gold price over the last week shows the metal is in rebound mode following the July 7 bottom. That means gold is poised to continue higher the rest of the year. I see it rising to $1,300 within the next few weeks before reaching the $1,400 mark by the end of 2017.
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