The price of gold consolidated again last week, but that stage of the climb might already be over. If the “golden staircase” pattern continues, gold prices could jump higher again soon.
Gold spent January like a lion, then entered February like a lamb. But momentum and interest have been building for the asset.
Early last week, gold rallied to a 10-month high, hitting my most recent target before dropping back. But even that retreat was short-lived as bargain hunters stepped in.
The good news is that the 13 week cycle appears to have entered an up phase. And it did so before materially breaking the previous low. The bad news is that 9-12 month cycle indicators are showing no signs of strength early in this up phase. Here’s what it means, and a suggested trade.
And that has the sector abuzz.
With U.S. growth likely slowing, the newly dovish Fed is going to be very hesitant to hit the brakes via rate hikes. In fact, its next move may even be back to the gas pedal via rate cuts.
As it turns out, consumers looking out five to 10 years have lowered inflation expectations to 2.3%, equalling the lowest level on record. Even some Fed insiders have argued inflation should be allowed to overshoot 2%.
Once real interest rates head back toward zero and below and inflation outpaces yields, gold prices will soar.
Here’s what happened with gold prices last week – and why I’m still bullish in my latest gold price prediction…
The Price of Gold Built Even More Momentum
Gold started roaring back this past week, hitting a 10-month high and my latest target at $1,340.
That means it easily surpassed January’s high of $1,320, my previous target.
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Tuesday’s (Feb. 19) action was explosive, certainly helped by a big retreat in the U.S. Dollar Index (DXY). The dollar sold off, and the DXY dropped from above 97 to below 96.5 in a matter of hours, powering gold to $1,340 by noon. The dollar stabilized and the DXY remained near 96.5 while gold did the same and closed at $1,341.
Gold opened slightly higher on Wednesday (Feb. 20) at $1,343, peaked at $1,346 at noon, and then saw profit-taking set in as it dipped back to close at $1,338.
Here’s the dollar’s action in the form of the DXY for the past week:
On Thursday (Feb. 21), unsurprising profit-taking emerged in gold, aided by a bit of renewed dollar strength. The DXY regained 96.6 while gold fell back to close at $1,323.
But that didn’t last long, as bargain hunters bought the dip on Friday (Feb. 22). The DXY dropped back below 96.5, while gold rallied to $1,330, a level it held at mid-afternoon.
That’s actually great news for the price of gold.
In fact, it puts gold on the trajectory to hit my latest gold price target…
Why My Gold Price Prediction Remains Bullish
The dollar remains a bit of a wild card.
Although it has rallied of late, it did make a lower high, yet it’s still trading above both its 50-day and 200-day moving averages. Until it crosses below the 200-day moving average, we need to consider that the dollar is in a position of strength.
Both the relative strength index and moving average convergence divergence are near mid-range, so they’re not really giving any clues on direction.
The interesting thing is how strongly gold has performed since the DXY’s rally off the 93.5 lows of mid-September.
We can see that gold bottomed only shortly after the DXY and has put in a massive rally since.
Like I detailed last week, gold can move higher for extended periods, even as the dollar does the same. And gold tends to rally significantly higher once those simultaneous dollar advances finally end.
In that context, gold’s bull could just be getting started.
Interestingly, spot gold prices reached then retreated at the level I had targeted, $1,340. This is still my next target, which gold will need to cross above and hold. At that point, $1,340 could become a new floor as gold then works its way to $1,360 in the “golden staircase.”
A quick look at how gold stocks have been performing is also pretty revealing.
Notice that the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) has powered higher, surpassing its April high of $23. I think this could lead to some short-term profit taking, but $23 could become a new floor.
Also notice that we have a “golden cross”, with the 50-day moving average crossing up over the 200-day moving average, and volume has been rising gradually since June.
Now the GDX-to-gold ratio is also advancing, meaning gold stocks are rising more quickly than gold.
We see a similar pattern to GDX alone. Sentiment is certainly favorable toward gold, but the shift toward gold stocks has been stronger.
Here’s a look at my recent recommendations.
The DB Gold Double Long Exchange Traded Notes (NYSEArca: DGP) are down about 9.2%, but it’s only been a little over one month. Gold’s bull is looking strong, so stay long DGP and/or buy on dips.
The VanEck Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) has participated nicely in the rise of gold stocks and is now up about 10.4% since mid-January. Continue to buy on dips.
Gold continues to look strong, but it could still be overbought. As we near the end of February, the seasonal pattern favors a pullback or at least more consolidation. But given how gold’s been behaving, it may still surprise to the upside.
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