Outlook for Gold Prices
While Tuesday’s setback was dramatic, it’s not the beginning of the end. That weakness will likely fade away as soon as memories of the report out of Hong Kong do … probably about 24 more hours.
The bigger concern the gold bugs and GLD owners might want to mull now is the fact that the U.S. dollar is on the rise after breaking above a major resistance line. Even then, however, interest rates aren’t rising with the sawbuck.
Theoretically, gold prices should be trapped between that rock and hard place. And, given how a rising dollar is the only thing working in favor of gold now — and given that there’s actually nothing palpable working in favor of a rising U.S. dollar, the odds suggest the dollar will weaken again and put gold back into an uptrend.
As for where gold prices are apt to make their way from here, the old support and resistance lines still apply — there’s a floor at $1,180, and a ceiling around $1,400. The resistance line around $1,400 also coincides with a key Fibonacci retracement line.
What’s interesting here is how the fireworks started to fly right when volatility was reined in. The evidence is the way gold’s key moving average lines have converged. If the pattern holds true, odds are good we’ll now start to see the volatility widen again to pull those moving averages apart.
The question is, which direction will that renewed volatility push the commodity?
Most likely, upward.
Yes, a bullish move here would go against Tuesday’s grain. This isn’t to say gold prices are going to bolt immediately higher, though. It might take a couple of days for Tuesday’s setback dust to settle. Between Q1’s modest growth in consumption in addition to hints of inflation on top of a U.S. dollar that’s set to slide lower again, the odds simply favor a rally from gold and gold ETFs like GLD.
For traders needing something of a safety net, however, the smart move here would be waiting for gold prices to move back above the convergence of moving averages around $1,295. That’s the move that could have a slingshot-like effect on gold prices.
And should gold make its way beyond $1,400 — which is a distinct possibility — look out above.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.