The stock markets are in the red so far this year, with the Dow down over 1%, but gold prices continue to gain.
Between geopolitical tensions and the U.S. Federal Reserve’s rate hikes, investors are uneasy about the stock market right now. The CBOE Volatility Index (VIX) has nearly doubled this year.
Gold is actually managing to consolidate on the higher side, as bonds are losing their luster. Gold prices have risen to $1,327 from $1,316.10 at the start of the year.
But the gold price catalyst in the near term, though, could be the dollar.
Gold still needs to make a run for $1,370, but that could happen sooner than many think.
Why the Price of Gold Was Flat Last Week
On the whole, gold had a sideways to slight downward bias for the week, as geopolitical tensions eased a bit.
Monday (April 16) and Tuesday (April 17) were nearly neutral for the metal, which was up slightly by just $4, to $1,347. News of a 1.9% rise in U.S. housing stats in March over February kept the lid mostly on.
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But on Wednesday (April 18), gold climbed in early morning trading to peak at $1,353 around 9:00 a.m., and from there pulled back slightly to close at $1,349.
The U.S. Dollar Index (DXY) got its second wind on Thursday (April 19) in the late morning, powering up from near 89.5 to break higher and trade in the 89.85 range, likely boosted by oversold conditions.
Check out how the DXY jumped on Thursday and ran higher into the weekend…
The DXY’s jump forced gold lower, to close at $1,345 on Thursday, as the stock markets also took a hit…
The downturn was a theme that bled into Friday (April 20), with stocks down along with bonds as bond yields pushed higher. Gold gave back $5 to close at $1,335 on the day.
But gold’s sneaky performance on the year is an encouraging sign, one that could help push gold prices to my latest gold price target…
Gold Prices Have a Bullish Wind at Their Back
There’s an interesting face-off that seems to be developing between gold and the dollar. And the interesting part is that they could both win.
Here’s what I mean…
The dollar has been moving in a sideways range since mid-January.
This is a bullish technical formation, an ascending triangle pattern that develops during a consolidation period. Often, the result is a breakout to the upside.
In my view, that could pop the DXY to 92.5, but I doubt it would do much more than that.
And before you decide that’s going to be bearish for gold, first have a look at its own chart.
Interestingly, gold seems to be forming its own bullish ascending triangle pattern. The top of that triangle is at $1,365.
The dollar is closer to its top and could break out before gold does, and it could even keep a bit of a lid on gold for a short while. But ultimately, the yellow metal seems to be setting up for a rally once it breaks through $1,365, and then ultimately $1,400.
As for gold stocks, the action may be a foreshadowing of this move in gold I’m expecting.
Here’s a look at gold stocks.
The recent rise above the 200-day moving average is significant in terms of momentum. Also, notice the RSI and MACD have run higher in the last week especially. Notice too that the 50-day moving average (blue line) has just turned up as well.
If gold stocks can hold above the 200-day moving average, then that could mean more highs will come.
Now, looking at the gold-stocks-to-gold ratio, we see a similar outlook.
The outperformance of gold stocks to gold of the past two weeks is very bullish and suggests both these assets could be headed higher. And the 50-day moving average (blue line) having just turned up helps support that possibility.
Meanwhile, here are a few interesting, recent gold tidbits.
Managing partner Fitz Folts, at 3EDGE Asset Management LP in Boston, with $800 million in assets, recently said it was time to move away from emerging markets and bonds, and head toward gold. According to Folts, gold is best suited now to provide protection against risks from trade tensions.
Fund manager at Incrementum AG Ronald-Peter Stoeferle said he expects that the trend higher in gold prices could have a longer life even than real bond yields. Given the recent end of the three-decade bond bull market, that’s saying a lot.
Also, ING bank commodity strategist Oliver Nugent recently said he expects gold will surpass $1,400 before too long. His rationale is that markets are not accounting for the risk of rising inflation.
On that note, I must agree. And that’s why I think $1,400 gold could be here sometime this summer.
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