Gold's strong negative sentiment may have finally run its course.
Going back to early April, the price of gold has lost a total of $110. The relentless selling pressure lasted close to three months.
A counter-cyclical rally in the U.S. dollar, leading to a rise in the U.S. 10-year Treasury, attracted safe-haven money to cash over gold.
But the dollar's rally also looks to have run its course. In the past week, the U.S. Dollar Index (DXY) has given back over 100 basis points. The 10-year Treasury yield is also 28 basis points lower than its peak in mid May.
And the release of June U.S. Federal Reserve minutes on Thursday was revealing. Some Fed officials voiced concerns that more rate hikes could cause the yield curve to invert and that if trade wars take hold, they'd want to be more accommodating.
Trade threats appear to be the prime concern. So now the certainty of two more rate hikes this year has come into question. That helped cause the dollar to sell off, removing a considerable speed bump in the way of gold's rise.
Now it looks like we've hit gold's bottom, and momentum has shifted positive. With a higher seasonal trend on its side, we could see gold pop and quickly regain its highs of this year.
Given how gold stocks are reacting, we have another indicator of a possible run-up from here.
Before I show you my newest gold price forecast, here's how the metal is trending...
How the Price of Gold Is Trending Now
Gold just kept trending lower as the last trading week started. It opened on Monday, July 2, at $1,249 and sold off into dollar strength, which took the DXY all the way up to 95.10. Gold touched $1,240 before closing at $1,242.
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Then in the early morning hours of July 3, gold touched an intraday low of $1,238 before reversing. It hasn't looked back since. The precious metal then rallied strongly to a $1,256 peak at midday, likely helped by short covering, then reversed slightly to close at $1,252.
After touching a high of $1,260 early on July 4, gold dialed back to about $1,256. The $1,251 level would only be tested on Thursday morning as the markets anticipated the release of the Fed's June meeting minutes.
Here's the DXY's action of the past week:
Gold's dip ahead of the Fed minutes was short-lived. It touched $1,251 then rallied to close at $1,257, likely encouraged by Fed members' reticence toward future rate hikes, caused by concerns about trade wars.
And as we entered Friday, strong jobs numbers lifted stocks as the DXY drifted sideways, down at 94 most of the day. Gold bounced in a healthy range between $1,253 and $1,256, hovering at $1,255 by late afternoon.
Now that gold prices have appeared to bottom out, here's where I see them heading...
Here's My Newest Gold Price Target
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The dollar's recent weakness could be a sign of a reversal in trend.
The DXY's rise of the past month has come with falling momentum as shown by the relative strength index (RSI) and moving average convergence divergence (MACD). This suggests the dollar's rise could be over after a peak at 95. The next target lower would be 92, and it could even drop to 88 if weakness persists.
As for gold itself, the recent drop to $1,240 looks very much like a double bottom, matching the low of last December.
The recent reversal shows negative sentiment could now be exhausted. Note how the RSI popped back above 30 after about a week spent below.
The MACD has also just ticked higher, and gold's reversal was accompanied by strong volumes.
Now let's look at how gold stocks have acted.
Gold stocks bottomed on June 27, nearly a full week before gold itself. The GDX then quickly regained its 50-day and 200-day moving averages. Its next target is to close and hold above $23, which should help trigger the next leg higher.
And looking at the gold-to-gold-stock ratio, we see a big surge higher, with the equities advancing strongly.
They may even be a little overbought right now, but sentiment has been so weak we could see this persist for a while yet.
I think gold's ready to rally to about $1,300 over the summer, with a strong chance of retaking $1,400 by year's end.
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