The price of gold per ounce has bounced back this week, but it's still too early to tell whether the gold price correction is over yet.
In the past week alone, the price of gold per ounce has gone from a bottom near $1,310 to rally back to $1,350.
Gold stocks have followed suit, with the HUI Gold Bugs Index going from a low of 221 to a high of 250.
Of course, the weaker dollar gave the price of gold a tremendous boost. This week, the U.S. Dollar Index (DXY) dropped a surprising 150 basis points in just two trading days.
That volatility inevitably led to a spike in the price of gold per ounce this week.
But the real question is how long the rally will last. Before we get into the outlook for gold prices for the rest of 2016, here's how gold prices trended this week...
What Moved the Price of Gold per Ounce This Week
As the gold price was dragging in the morning hours of Friday, Sept. 2, a bounce was in store. The weak jobs numbers were interpreted as a lower chance for a September rate hike by the U.S. Federal Reserve.
That weakened the dollar, which allowed gold to pop. Gold prices opened at $1,314 before closing at $1,325.
Urgent: Despite the recent gold price slump, gold stocks are still among the best investments to make now. That's why we just recommended one gold stock that could gain 49% in 12 months...
Monday ended up much quieter. Gold prices maintained their slightly higher levels and closed at $1,327.
Tuesday brought renewed bullish action. The price of gold per ounce opened on strength at $1,333 and kept heading higher to $1,350 by 2:00 p.m. From there it moved sideways to close just a dollar lower at $1,349.
On Wednesday, gold retracted slightly. It opened at $1,347 before closing the day lower at $1,345 per ounce as traders took recent profits.
Further weakness in the dollar on Thursday drove the price of gold per ounce higher temporarily. But that was short lived. The DXY bottomed around 9:00 a.m. at 94.47 and just before noon was back at 94.93. Gold opened at $1,345 but had weakened on balance to $1,340 by midday.
Here's a chart of how the DXY behaved over these past five trading days to give you some perspective.
Now that we've recapped the past week for gold prices, here's what I see moving the price of gold per ounce over the last three months of 2016...
Where the Price of Gold per Ounce Is Headed Now
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Here's a rundown of some of the latest gold market news.
Indian gold imports were down a surprising 60% through August, thanks to a countrywide strike by jewelers and higher duties, as well as taxes and government meddling.
Balancing things out somewhat, China reported that its central bank had added 4.98 tons of gold in August and 5.28 tons in July. Many continue to believe that China consistently underreports its gold reserves in an effort to accumulate at relatively lower prices.
And finally, a look at sentiment in the gold market. Commitment of Traders (COT) reports for gold futures trading show bets on higher gold prices remain just below their recent all-time highs. In fact, current levels are higher than when gold prices reached their peak at $1,900 in 2011.
Sentiment gauges like this typically act as contrarian indicators, especially at extremes. While this is just one input, it's worth considering that it could be signaling further downside in the price of gold per ounce.
If that pans out, I'd expect to see $1,310 as an initial target.
Still, by year's end the price of gold per ounce has strong potential to tack on another $70 from current levels to reach $1,400 thanks to strong fundamentals.
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