What happened in gold prices over the least week is going to become more commonplace.
Early Tuesday morning (Oct. 23), as I began my daily routine, I checked in on gold prices just before 8 a.m.
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What I saw shocked me: $1,237.
That was the price for an ounce of gold; $15 higher after the metal had ended the previous day at $1,222.
The price of gold hit a three-month peak as stocks slid globally and geopolitics remained high on the list of investors’ concerns. The 10-year treasury yield dropped to 3.13%, and the U.S. dollar remained near a two-month high as safety became the order of the day.
Just last week, I said to watch for a break above $1,235 for a possible confirmation that a new gold rally was at hand.
We’re almost there now, and I’ll show you the latest gold chart pattern to show you exactly why…
Why Last Week Kicked Off a Gold Price Rally
Monday (Oct. 22) was lackluster for gold as equities bounced back strongly and the dollar saw gains.
But Tuesday brought the big move.
After climbing strongly in the early morning hours, gold reached near $1,239 momentarily, just after 8 a.m. Stocks sold off hard, with the Dow dropping almost 500 points, or 2%, as weak earnings and geopolitical tensions weighed on investors’ spirits. The EU rejected Italy’s proposed budget and asked for a revised draft within three weeks, and Brexit negotiations continued to cause concern.
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On Wednesday (Oct. 24), there was more obvious safe-haven buying as the U.S. dollar jumped again. The U.S. Dollar Index (DXY) made a morning run to test 96.5 before turning back to 96.35.
But equities continued their free fall, with the S&P 500 off 3%, the Dow down 600 points or 2.4%, and the Nasdaq down a whopping 329 points or 4.4%. That market sell-off pushed the S&P 500 into the red for 2018. Once again, gold prices held steady as safe-haven buying dominated, pushing the metal up $3 on the day.
You can see how the DXY slowly grew over the week as stocks slumped…
By Thursday, U.S. equities bounced back, and the dollar jumped on news the European Central Bank left rates unchanged while its president Mario Draghi promised monetary policy would remain “very accommodative.” That kept gold prices flat.
To end the week, equities sold off again as the stock rout extended. But the price of gold jumped to $1,240 by late Friday morning (Oct. 26) even as the DXY retreated from an 8 a.m. peak at 96.85 to 96.5, and the 10-year yield dropped to 3.08%.
That jump to $1,240 was short lived as gold retreated, but still managed to close at $1,233.
But I believe last week’s gold price performance was great news – and a sign a gold rally is in the works.
Here’s my gold price target thanks to the coming rally…
Where Gold Prices Will Rise to as the Rally Gains Steam
Let’s look at the dollar’s action with a little perspective.
The DXY had a strong week, going from a low of 95.5 late Sunday to a peak of 96.85 on Friday morning. But this happened even as gold rose and remained strong.
This week’s strength pulled the dollar up to 96.5, possibly testing the same high set back in mid-August. It will be interesting to see what happens next. While it could go higher, and there is plenty of safe-haven buying, that could well be its peak, especially if equities finally end their sell-off.
As for gold, it’s been building strength since October.
By Friday afternoon, gold had traded above $1,235, my target for possible confirmation of a new rally. But it closed at $1,233 by the end of the day, remaining just shy of my crucial level.
Gold may be starting to establish what I like to call the “Golden Staircase.” That’s when the price moves up, then consolidates around a particular level, then moves up a step and consolidates at the new higher level.
Notice how the two blue lines I’ve drawn in appear to be forming that staircase pattern…
Once we see gold rise solidly above $1,235, I’d be looking for $1,260 as the next “step” in the staircase. Right now, both the relative strength index (RSI) and moving average convergence divergence momentum indicators are confirming the move higher, and both have room to rise before becoming overbought.
But even as gold prices gathered momentum, gold stocks struggled last week. You can see how drastic the fall was in the chart of the VanEck Gold Miners ETF (NYSEARCA: GDX) below…
But if we compare gold stocks with the S&P 500 over the past month, gold stocks actually outperformed to the tune of about 11.5%. The S&P 500 was down 8% while GDX was up 3.5%, and that was after a pullback. Before that, GDX was up about 9% while the S&P 500 was down 9%.
So despite the added risk and volatility, gold stocks look like an attractive option for portfolio diversification.
And even with the rising dollar and softer bond yields, gold’s been behaving well.
We could well be at the start of a new multi-month leg up in gold with the next target being $1,260.
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