In my update last week, I made the case for why I thought gold prices had bottomed on July 7 at a nearly three-month low of $1,210.
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
This week’s action seems to be cementing that view, with the gold price on track to post a weekly gain of 0.6%. If that happens, gold will have posted its third weekly gain in a row since the July 7 bottom.
Gold’s been hitting my targets pretty consistently, with the $1,260 target I mentioned last week already surpassed with today’s 0.3% gain to $1,263. The catalysts behind this past week’s lift were the Federal Reserve and the U.S. dollar.
In fact, the price of gold closed at $1,260 – the highest since June 14 – thanks to the Fed’s decision to keep interest rates unchanged after the FOMC meeting this week.
Investors think interest rates may not be raised again until December at the earliest and that deflation may be making a reappearance globally.
As a result of the Fed’s dovish tone, the U.S. dollar sold off pretty hard. The U.S. Dollar Index (DXY) has fallen 26 basis points from 93.86 a week ago to a 15-month low of 93.60 today. Since a cheaper dollar makes gold more attractive to users of other currencies, the DXY sell-off has pushed gold prices higher over the same period.
At this juncture, we could be in for a small consolidation, but then I think the metal’s bias will be higher as bullish momentum, sentiment, and seasonality lift it higher.
Before I show you how much higher I see the gold price heading this year, let’s look at its strong performance this past week…
Gold Prices on Track for 0.6% Weekly Gain (July 21 – July 28)
After settling at $1,254 on Friday, July 21, the price of gold opened slightly higher on Monday, July 24, at $1,256. The metal traded in a tight range between $1,254 and $1,258 throughout the session, eventually closing at $1,255 for a small 0.1% gain from the Friday close.
On Tuesday, even as the dollar temporarily dipped below the 94 level in morning trading, the gold price opened lower at $1,250. It bounced to $1,254 that morning before heading back lower to settle at $1,249.60 for a 0.4% loss on the day.
Here’s a look at the DXY over the last five sessions…
The gold price weakness followed through into Wednesday morning as traders sold further before the Fed’s 2 p.m. statement that it would keep interest rates steady. But by 4 p.m., gold prices had surged higher to $1,261 on the back of the dollar’s sell-off, which took the DXY from 94.20 to 93.40 in just over two hours. The metal eventually closed 0.8% higher at a six-week high of $1,260.
On Thursday, July 27, the DXY saw a relief rally from 93.67 to 93.92. However, this had a negligible effect on gold, which closed flat at the six-week high of $1,260 seen the previous session.
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The gold price today (Friday, July 28) is up another 0.2% and trading at $1,263 – the highest since June 14. If the metal closes at that level, it will post a weekly gain of 0.6%.
With this being gold’s third consecutive weekly gain, it’s becoming increasingly clear that July 7 was undoubtedly the bottom. And like I said above, I think momentum, seasonality, and sentiment are all on gold’s side right now, which is why I’m bullish on gold prices in the second half of 2017.
Here’s how those three factors will push gold to these high price targets before the end of the year…
This Is My Bullish 2017 Gold Price Prediction
Last week, I said to look for gold to reach my next target at $1,260. We’ve just surpassed that today with gold currently at $1,263, and that has gold sitting just above its late June peak around $1,256.
That puts the price of gold squarely above both its 50-day and 200-day moving averages, indicated by the blue and red lines in the chart below…
And as you can see from both the RSI and MACD indicators – at the top and bottom of the chart, respectively – gold’s price action since July 10 clearly has momentum on its side.
Seasonality is also in gold’s favor. In the up years of the current gold bull market that started in 2001, gold has gained an average of 7% between mid-June and September. That kind of gain from the July 7 low of $1,210 would pull gold up to just $5 shy of the psychologically important $1,300 mark.
And finally, the Commitment of Traders (COT) reports I often refer to have smart money at a very low net-short position of 73,635 contracts – the lowest since Jan. 26. That indicates trading sentiment is becoming more bullish, which could translate into a higher gold price this year.
From here, I think gold could reach the $1,275 level over the next month, which would be a 1% gain from the current $1,263 level. Then I expect it to be well on its way to $1,300 before the end of Q3. Beyond that, I could see the price of gold reaching $1,400 by the end of Q4 – a 10.8% rise from the current price.
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