Two events last week pulled gold prices in different directions, but U.S. President Donald Trump's announcement of steel and aluminum tariffs helped end gold's recent slump...
First was Federal Reserve Chair Jerome Powell's testimony to Congress. Although the newly installed Powell said the economy was strengthening, he also alluded to the possibility of more aggressive rate hikes.
That triggered a stock sell-off and a dollar rally.
Then, on Thursday (March 1), stocks fell further as reports emerged that Trump said he'd impose tariffs on imported steel and aluminum. The U.S. dollar also tanked as observers upped the risk of developing trade wars.
Although gold sold off on Powell's comments, it came roaring back on tariff news and the weaker dollar. As stock selling intensified, investors shifted some of their proceeds into gold.
Today, I'll show you just how the price of gold moved last week, plus how high gold prices can go in the wake of the tariff announcement...
Why Steel Tariffs Are Boosting Gold
Last week was eventful for the price of gold, and I'll show you exactly what mattered for gold prices.
Faced with rising stock indexes on Monday (Feb. 26), gold prices were hurt as the U.S. Dollar Index (DXY) found renewed vigor. From an early morning low near 89.5, the DXY tested 90 by mid-morning, then managed to consolidate high around 89.75 the rest of the trading day. As a result, gold, which opened at $1,337 at 8:00 a.m., sold down to a noon low of $1,331 before recuperating slightly to a $1,333 close.
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On Tuesday (Feb. 27), Powell's testimony sunk stocks as traders reacted negatively to the possibility of four Fed rate hikes this year. The Fed had previously predicted just three rate hikes this year.
That sent the dollar soaring.
The DXY jumped to test 90.5 by the end of the morning. It then backed off through the afternoon to 90.40. Gold opened at $1,332, then quickly sold off on dollar strength to a 1:00 p.m. low at $1,315 before recuperating slightly to close at $1,318.
Wednesday (Feb. 28) had stocks holding their own until mid-afternoon, when weakness returned in earnest. The DXY strengthened from 90.5 to 90.65, weighing on gold. The precious metal opened at $1,320 but weakened on balance to close at $1,318 in NY trading.
Then on Thursday (March 1), Trump's tariff news punished stocks in late afternoon. At its worst point, the Dow was down over 500 points, or more than 2%. Oil and bond yields were also down. The DXY gave back 65 basis points from its intraday peak, down to 90.25 by 5:00 p.m.
Check out how swiftly the DXY fell after the tariffs were announced...
And you can also see how the tariffs sent the stock market reeling too...
While the S&P 500 was down about 1.35% on the day, gold had gained about 0.5%, and the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) was up some 2.7%. Gold itself had opened at $1,306 and closed at $1,317.
You can see just how well gold and junior stocks performed against the S&P 500 right here...
Friday (March 2) would see further weakness in the dollar, with the DXY hovering just around the 90 level most of the day. That extended softness supported gold further, and the yellow metal opened higher, at $1,322, which maintained into the close.
Here's my latest 2018 gold price target now that the new steel tariffs are driving down the dollar and boosting gold...
How High Gold Prices Can Go in 2018
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To know where gold will go next, let's look at the dollar first.
It's looking like the DXY has just failed to push past the 90.50 level for the second time in February.
The first failure came last week on Thursday, with the 50-day moving average at 90.57 acting as overhead resistance. The RSI looks to have rolled over, and the MACD may also be exhausted.
More weakness for the dollar is now likely to be blamed and egged on by Trump's opening salvo for trade wars.
Meanwhile, that could spell good news for gold.
My view is gold should benefit from dollar weakness and nascent inflation fears from possible trade wars, despite possible seasonal weakness over the next few weeks.
Technically, gold may have just tested its recent low, near $1,305, where it bounced to end the week near $1,322. That's a hair away from its 50-day moving average, and the RSI and MACD momentum indicators look close to bottoming out.
The $1,365 level remains my first significant upside target. I think we can get there in the next few months, with $1,400 perhaps early in the second half of this year.
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