What's Next for Gold Prices in 2017

Despite a recent peak just above $1,240 late last week, gold's held up well in its recent mini-consolidation.

What's impressive is that this relative strength has come despite some headwinds and some support for gold prices in 2017.

On Wednesday, the U.S. Labor Department reported the January Consumer Price Index (CPI) had risen 0.6%, or double economist forecasts.

That pegs annual inflation at 2.5%, which is the biggest year-over-year rise in nearly three four years.

gold prices in 2017But let's not forget U.S. Federal Reserve Chair Janet Yellen's recent testimony to the House Financial Services Committee. That lit a fire under the dollar and simultaneously tanked gold prices... at least temporarily.

Interestingly, the effect was short-lived, and there are some likely reasons why, which I'll explore below.

Here's a look at how gold prices in 2017 have been trending and where I expect them to head from here.

How the Price of Gold Is Trending Now

The gold price ended last week on a surprisingly strong note.

It opened on a bit of weakness at $1,226, then quickly rose to peak at $1,234 at midday. From there gold settled back slightly to end the week at $1,233.

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Monday saw gold prices open about $5 lower at $1,228 as the market started anticipating Yellen's testimony the next day. They quickly dropped to $1,222 at 10:00 a.m. Still, some restrained buying came into the market and managed to pull the price of gold back up to $1,225 by the close.

Tuesday began with Yellen warning of the risks of waiting too long to raise rates. That caused the dollar to pop and gold prices to sink. Here's how that looked on charts.

gold prices

price of gold

On Wednesday, the U.S. Dollar Index (DXY) continued to head higher as the market kept digesting Yellen's statements. In the process, the dollar rose to its highest level since mid-January on Yellen's talk of possibly raising rates at upcoming meetings and up to three times this year.

That's when the DXY hit near 101.75 and gold, which opened at $1,226 tanked to $1,219. But both almost immediately reversed directions. The DXY dropped back to 101 within hours, and gold popped then closed at $1,233.

On Thursday, gold opened higher at $1,238 after climbing in overnight trading. I think the market began doubting Yellen's ability to raise rates as much as she suggested. And that took the dollar lower and gold even higher to peak at $1,242 near 11:15 a.m., then closing still strong at $1,239.

Looking forward, here's what I expect for gold prices in 2017...

Where Gold Prices in 2017 Are Headed Next

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The way I see it, the market's not pricing in a rate hike as early as March. With upcoming European elections and the approaching U.S. debt ceiling, Yellen's likely to take a wait and see approach.

At the same time, U.S. consumer prices have just hit a four-year high, giving gold buyers confidence, which manifested itself in a bullishly higher gold price.

Interestingly, "bond god" Jeffrey Gundlach believes the Fed's next rate hike won't happen any earlier than June. Given the latest inflation data, that could put the Fed squarely behind the inflation curve. The dollar's loss of momentum seems to be telling us this.

And that's what I think gold is sensing right now as it continues to act quite bullish.

Watch for gold's next move to be higher as it potentially "tests" its 200-day moving average near $1,270, maybe even before the first quarter of 2017 is up.

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