Despite a slight decline this week, the price of gold in 2017 is still outperforming the stock market. Gold is up 11.5% on the year, while the Dow Jones Industrial Average is only up 4.1%.
Even with this week's drop, gold prices made the significant move of steadying above their multi-month resistance level around $1,260.
When gold pushed above that level for the first time last week, I asked if it would be enough to sustain its new heights. Since then, we've seen the gold price pop to $1,294, but then pull back to a low of $1,275 intraday.
Despite some bullish factors like a strong seasonal upward trend and geopolitical tensions, I said I thought we could see some near-term weakness first.
This past week's pullback supports my expectations that we could see a "test" of at least $1,260, where the price of gold's previous resistance has now become support.
Technically, there are some further indicators pointing to possible weakness in the gold price before it can finally move higher in a sustained way. I'll detail those for you soon.
First, let's take a closer look at gold's drop this week...
Gold Prices Decline 0.3% This Week
After closing the week at $1,288 on Thursday, April 13, due to markets being closed on Good Friday, gold opened slightly lower on Monday at $1,286. Despite a retreat in the U.S. dollar, the price of gold kept trending lower to close at $1,284 for a 0.3% loss.
On Tuesday, April 18, the gold price bounced higher as the dollar fell below the 100 level. By the end of the session, the metal was up 0.4% to $1,289.
Here's how the U.S. Dollar Index (DXY) - which measures the dollar against several other foreign currencies - has trended this week...
Wednesday saw the DXY regain some lost ground, which weighed heavily on gold prices. A choppy day's trading saw prices fall 0.7% to settle at $1,280.
Free Report: How to Invest in Physical Gold and Silver
On Thursday, April 20, sellers kept the gold price below $1,280 for a good part of the morning. However, buyers took over and brought the metal back up to $1,282 by the close. That marked a 0.2% gain on the day.
This brief decline lines up with my expectations that gold is due for a pullback. It's important to remember that this type of gold price movement is healthy when the metal is on a big rally.
And I expect gold prices to see a strong rebound by the end of the year.
Here's my gold price target for 2017...
My Prediction for the Price of Gold in 2017
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Looking ahead at the gold price also requires looking at gold stocks, which have been pulling back this past week alongside the gold price itself.
We can gauge the performance of gold stocks by looking at the Gold Bugs Index (HUI), which is down 3.3% this week...
What I find interesting is that when gold crossed above its 200-day moving average, gold stocks managed to break resistance, too. However, that was only their 50-day moving average. As you can see, the 200-day moving average line for the Gold Bugs Index has acted as overhead resistance for gold stocks, and they are now back at their 50-day level once again.
Looking at recent gold price action in the chart above, we see it's just rolled over and may be falling back to test support at $1,260. Certainly, if we consider the RSI and MACD momentum indicators, they also look like they may have peaked.
Also notice that the 50-day moving average is rising, approaching the 200-day moving average. I would not be surprised to see gold prices, the 50-day moving average, and the 200-day moving average all converge around $1,260. At that point, it will be crucial to watch what gold does next.
Still, inflation-adjusted interest rates have recently turned negative and continue to fall as inflation perks up and Treasury yields remain weak.
This chart details how gold and 10-year Treasury yields have performed over the last three years...
Negative rates bode well for the price of gold, which benefits from a lessening opportunity cost. And according to Metals Focus analysts, that might help gold reach as high as $1,475 in 2017.
Meanwhile, Credit Suisse agrees U.S. inflation-adjusted rates are likely to continue trending downwards, supporting a $1,400 gold price.
My gold price forecast for the end of 2017 remains $1,400 - a number I've been pointing to for gold in 2017. We'll be closely watching the metal as its main technical indicators - the 50-day and 200-day moving averages - move closer to convergence.
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