The price of gold blasted higher on Friday, testing the $1,300 level and adding new momentum to the bullish gold sentiment.
Still, that psychologically significant price remains elusive. But in my view, that’s not likely to be the case for long.
You see, the U.S. dollar put on a brief relief rally last week. And as the market looks forward to this week’s Fed meeting, it’s starting to price in no rate hike.
That’s contributing to the weaker dollar.
But whether the Fed puts on either a hawkish or dovish tone this week, gold prices are positioned to rise. I’ll tell you exactly why below.
Gold trading succumbed to ongoing dollar strength and more trader apathy through most of last week.
The major U.S. stock indexes struggled through a choppy week until Friday (Jan. 25). Earnings were coming in quite strong, beating estimates by about 2.4%, with 69% of companies managing to beat bottom-line estimates.
How to Profit off This $11.1 Billion Money Pool: By following a few simple steps, one IRS directive could help set you up to receive checks of up to $1,795 every single month thanks to a genius investment. Learn more…
Through all of this, gold traded in a pretty narrow range, between $1,278 and $1,286.
That is, until Friday. All the gold price action, it seems, was concentrated on that day. Here’s what happened…
Traders began favoring other major currencies and rotating back into stocks. The DXY peaked Thursday (Jan. 24) afternoon at 96.64 and then dialed back to 96.45. But just after 8 a.m. on Friday, the DXY sold off dramatically down to 95.9 by noon.
Take a look at the dramatic move here…
That sell-off powered gold prices higher, despite a surge in the major U.S. indexes.
Gold broke out from $1,284 to briefly touch $1,300 just before noon. That was a 1.5% jump from Thursday’s close, and another sign that gold is primed to break $1,300 soon and head higher.
Once it reached those levels, the metal traded mainly between $1,296 and $1,298 before heading into the weekend.
As I said earlier, I think gold prices will break through the $1,300 level soon enough. But that’s not all. Here’s my latest gold price prediction…
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Here’s what I see when I look at the chart of the U.S. dollar index.
Since peaking in early December, the DXY has clearly been falling on balance. But what’s notable is that even the rallies have only managed to form lower highs. I’ve circled those in red. That’s a textbook definition for a trend reversal, which defines downtrend as a series of lower highs and lower lows.
What’s more, we can also see that since early January, the 50-day moving average has begun trending lower, adding more weight to the new downward trend.
Now, with the DXY trending lower, let’s turn to gold.
Friday’s action certainly gives credence to the argument that gold’s near-term support lies around $1,280.
Now my target of $1,300 has become all that much more obvious, after gold has now taken multiple runs at that level.
$1,300 is significant both technically and psychologically. And I’ve said as much recently.
I think with momentum indicators becoming a bit stretched, gold could need a little while to break through $1,300. I expect that level will bring with it some overhead resistance, and the gold price will need a few attempts to close above it. But once that happens, I believe $1,300 will then become a new “floor” for the gold price, establishing a “launch pad” for gold to reach for its previous high last year of $1,360.
I think with momentum indicators becoming a bit stretched, gold could need a little while to break through $1,300. I expect that level will bring with it some overhead resistance, and the gold price will need a few attempts to close above it.
But once that happens, I believe $1,300 will then become a new “floor” for the gold price, establishing a “launch pad” for gold to reach for its previous high last year of $1,360.
Before reaching my target of $1,360, I expect $1,310 and $1,320 will be the short-term targets.
Given how gold’s been acting and the now confirmed “golden cross” (50-day moving average crossed up over the 200-day moving average), gold’s bull is that much more certain.
Looking at gold stocks, the uptrend since early September is pretty evident too.
The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) has regained the $21 level. That’s significant since it has acted as major support over the last two years. It’s also important since that’s brought GDX back above its 200-day moving average, and a “golden cross” may lie in its near future as well.
Next, have a look at this chart of GDX-to-gold compared to the GDX alone (above).
Notice that although they look almost identical, they aren’t. This chart implies that gold stocks are not only rising, they’re doing so at a faster pace than gold itself since early September.
I expect gold stocks to continue to outperform the metal, but you need exposure to both.
So my recent recommendations, the DB Gold Double Long Exchange Traded Notes (NYSE: DGP) and the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) remain buys.
Gold’s outlook remains positive. If the Fed starts to turn hawkish, that could lead the markets to turn bearish as they start to price in an early recession. If the Fed remains dovish, the dollar is likely to get weaker. Both scenarios can help gold power higher.
A new age of easy money has arrived. And in today’s chaotic market, this could be the perfect way to collect enormous profits, each and every week.
You could collect THOUSANDS of dollars from the markets just by pressing a single button on your computer – without touching a single stock (or stock option).
For a limited time, we’re revealing all the details to Money Morning readers. Find out more here.
Follow Money Morning on Facebook, Twitter, and LinkedIn.
