The price of gold closed out the month of August with a strong rally last week following North Korea's most provocative missile test of the year. Gold climbed 4.3% last month and posted a weekly gain of 2.5% between the Friday, Aug. 25, close and the Friday, Sept. 1, close.
On Monday, Aug. 28, North Korea launched a missile that crossed directly over Japan before falling into the sea. This was the first North Korean missile test to cross Japanese territory since 2009, and it was enough to push investors to buy safe-haven gold throughout the rest of the week.
Japanese Prime Minister Shinzo Abe called the missile test an "unprecedented, serious, and grave threat," causing gold prices to reach $1,330 by Friday, Sept. 1. The metal hadn't crossed the $1,300 mark since Sept. 27, 2016.
The gold price today (Tuesday, Sept. 5) is up another 0.7% to $1,339 following yet another North Korean weapons test on Sunday. This time, the country tested a hydrogen bomb that was considered to be the most powerful nuclear test to date.
On top of North Korea's fear-inducing weapons tests, stalling jobs gains and a looming debt ceiling have also lifted gold. It's becoming clear from last week's rally that the price of gold established a floor at the $1,210 low seen on July 7.
That being said, gold's tremendous run higher hasn't taken a breath. A short-term pullback at this juncture wouldn't be a surprise.
But in the long run, I'm still overwhelmingly bullish. That's why I'm going to show you exactly where I see the gold price heading before the end of 2017.
First, let's look at gold's 2.5% rally last week...
Price of Gold Gains 2.5% to a Near One-Year High Last Week
After settling at $1,298 on Friday, Sept. 25, gold opened higher on Monday, Aug. 28, after reports emerged that North Korea had fired a missile over Japan. This pushed gold prices steadily higher throughout the session to close the day at $1,315 - up 1.3% from the Sept. 25 settlement.
The metal rose even further on Tuesday, Aug. 29, but it was mostly before the open. After starting the session at $1,320, it weakened slightly from there, as the U.S. dollar climbed from 92.21 to 92.25. But the gold price still managed to rise 0.3% from the previous session to close at $1,319.
Wednesday was marked by gold volatility as the U.S. Dollar Index (DXY) climbed toward the 93 level. This dragged gold lower throughout the day, eventually closing down 0.4% at $1,314.
Here's a look at the DXY's performance over the last five sessions...
On Thursday, Aug. 31, gold saw an early morning dip to test the $1,300 level, but quickly reversed to $1,306 at the open. As the DXY lost nearly 80 basis points throughout the day, gold prices climbed to $1,322 by the close. That marked a 0.6% jump for the day and a 4.3% gain for the month of August.
The price of gold kicked off September on a strong note thanks to the dollar's volatility. The DXY briefly dropped 30 points from 92.52 to 92.22 that morning, which pushed gold higher. It climbed 0.6% to close at $1,330. With that, the metal also posted a weekly gain of 2.5%.
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Gold prices today (Tuesday, Sept. 5) opened higher following the Labor Day holiday and North Korea's hydrogen bomb test Sunday. The test has dragged the Dow Jones 0.8% lower today while investors moved their money into gold as a hedge against volatility. Gold is up 0.7% and trading at $1,339.
After last week's exceptional 2.5% gain, investors want to know what to expect the rest of the year. With a leader as unpredictable and volatile as Kim Jong Un, it's hard to say how North Korea's conflict with Japan and the United States will impact the gold price moving forward.
However, there are some underlying fundamentals in the gold market that I think will boost the metal toward my bullish price target this year.
Here's how high I see gold reaching by the end of Q4 2017...
My Bullish Target for the Price of Gold in 2017
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I expect gold to reach $1,400 before the end of 2017. That would be a 4.6% gain from today's price of $1,339.
But a short-term pullback may be looming and would probably even be healthy for gold, considering it's seen a 5.8% gain - or $74 increase - in the past month...
If we look at the two highlighted strength indicators above - the relative strength index (RSI) and moving average convergence divergence (MACD) - they're looking pretty stretched right now. Like gold, both have run higher since early August.
At this juncture, we could see a pullback to test the $1,300 level. I'd expect that level to then act as support. With such a strong run, gold investors and traders may take some of their profits.
But remember, gold tends to be seasonally strong from June to September. That four-month period has seen an average gold price gain of 1% over the last 10 years, with October seeing an average 0.7% decline over the same period.
What's more, the dollar could be ready to rally somewhat after holding above 91 recently, which may have exhausted both sellers and short-sellers...
After bottoming at 92.21 on Aug. 28 - the lowest level since January 2015 - the dollar's RSI and MACD have turned up. If a rally of a few hundred basis points comes through, then gold will likely pull back and pause.
With that in mind, look for gold to hold above $1,300 in the short term as the dollar makes a potential comeback. Beyond that, the gold price could definitely reach $1,400 before Jan. 1, 2018.
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