The price of gold is starting to catch fire thanks to the stock market's latest struggles.
Gold could be in store for a strong 2019, even if stocks recover from their recent dramatic sell-off.
Gold wrestled against the dollar between May and November as the DXY rose from 89.5 to 97.5.
But just as the dollar index peaked mid-November, gold put in a bottom from which it has risen an impressive 7.8% so far.
The dollar has struggled since then. Multiple signs suggest that the dollar's trouble will continue this year. But despite stocks peaking in the fall, we've avoided a crash or sustained bear market.
And several indicators of worse to come, like an inverted yield curve, haven't materialized. So stocks could continue climbing for a while before their final bull peak.
But that doesn't mean gold can't rise as well. And the latest noises from the U.S. Federal Reserve suggest stocks and gold prices could move higher together this year.
Here's what's been happening to gold prices lately - and what that means for my latest gold price prediction...
As I've been saying lately, the Fed definitely considers what happens in the markets.
That's why on Friday (Jan. 4) Fed Chair Powell, speaking on a panel along with former Fed chairs Yellen and Bernanke, said the central bank's policies were flexible and that he and his colleagues were "listening carefully" to financial markets.
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It seems the late December cascade in stock indexes was enough to make them blink. That feedback reassured markets that a pause in rate hikes was now more likely.
You can see how the DXY held about even after the New Year's holiday last week...
As for the price of gold, Thursday's (Jan. 3) price action was supported by a falling dollar, which saw the DXY drop below 96.5 to 96.25 after an early morning bounce to 96.73. Gold rose steadily through the day, ending strong at $1,294.
But Friday's jobs data showed 312,000 jobs created in December, higher than the 179,000 jobs forecast, accompanied by an increase in wages. That strong labor news temporarily boosted the dollar and dented gold.
The precious metal bottomed at $1,276 mid-morning, then bounced back as Powell's dovish speech caused the DXY to backtrack, sending stocks soaring with the Dow up over 700 points. Gold traded around $1,285 by mid-afternoon.
This is all excellent news for gold, and I'm adjusting my gold price prediction upward even more.
Let's dig into the technical indicators a bit more and see just how high gold prices can rise in Q1 2019...
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Another reason I think stocks haven't begun a new bear market is the way the S&P 500 has managed to remain within its uptrend channel.
In October, the index hit the top of the channel, and then in December, it hit the bottom.
Take a look...
This correction took the S&P 500 to within a hair of the widely accepted 20% drop that defines bear market territory. And then it bounced.
As for the greenback, the U.S. dollar index continues to exhibit weakness and has remained below its 50-day moving average since mid-December.
In my most recent update, I said I thought gold could struggle to break through $1,300. I still think that's going to provide strong overhead resistance. But further weakness in the dollar, maybe with a DXY drop below 96, could be enough.
As for gauging sentiment, it's interesting to note what's happened with gold holdings in the largest gold ETF, the SPDR Gold Trust (NYSEArca: GLD). In 2018, GLD saw an outflow of almost 50 metric tons, or nearly 5% from 2017 levels, its most since 2015.
But GLD's more recent performance tells quite a different story. Between Dec. 25 and Jan. 3, GLD's holdings soared by an impressive 21.2 metric tons. That was its strongest five-day inflow since September 2017.
And looking at gold stocks, the picture is equally encouraging.
The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) has recently broken above the important $21 level, which acted as support from March 2017 until August 2018.
The ratio of GDX to gold shows the former rising faster since early September, too.
This ratio has been in an upward trend channel since September, and that's a great sign for gold prices. The ratio seems to have plenty of room to move higher, and has spent a fair bit of time since mid-December above its 200-day moving average, giving it a bullish demeanor.
Gold stocks leading gold this way suggests higher prices for both in the near term.
Overall, gold seems well positioned to reach for $1,300 in Q1.
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