Gold Price Forecast: It Happened! Gold Closed Above $1,500

Here we go, Ladies and Gentleman! Gold hit $1,500! Is the round number of $1,600 in cards now? In today’s article, we’ll keep focus just on the fundamental domain and speculate on the current alignment of these factors – looking merely at them will warm the heart of many a gold bull.

Boring Times In Gold Market Ended

Do you remember those boring last years when nothing much was happening in the gold market? Since 2014, gold remained in a narrow sideways trading range of $1,100 - $1,350 and since 2017, in an even narrower one of $1,200 - $1,350. As the chart below shows, this is over.

Chart 1: Gold prices (London P.M. Fix, in $) from January 2014 to August 2019.

The inversion of the yield curve and the more dovish stance adopted by the ECB and the Fed sent gold in June above $1,400. We commented on this event in the Gold News Monitor as follows:

It’s a huge development, as gold got out of a five-year trading range, despite the relative strength of the US dollar. For the past few years, the yellow metal could not unleash itself from the sideways trend and rally above $1,350. Now, it’s above $1,400, which creates hopes for further rally.

In the recent Gold Market Overview we wrote:

Of course, only time will tell whether gold’s great move above $1,400 will be sustainable or whether the bears will catch it in their claws and put it again in the sideways trend (…) From the fundamental point of view, there are fundamental reasons to believe that gold is able to defend its recent gains and run away from bears towards bulls.

We were right. Actually, we didn’t have to wait long for long to exceed the next round level, as the yellow metal hit $1,500 yesterday. Now, the crucial question is what’s next for gold?

What’s Next for Gold?

On the one hand, fundamentals are still bullish, or are actually becoming even more so. The US Dollar Index remains strong, but it is not appreciating. Real interest rates and bond yields are plunging. The yield curve has inverted further. The Fed cut the Federal Funds Rate in July, and a few other central banks, including Reserve Bank of India and Reserve Bank of New Zealand, followed suit. And the trade wars resumed last week, or actually transformed into currency wars. Recessionary fears increased and the expectations of further monetary easing strengthened. All these macroeconomic factors should provide support for gold prices.

On the other hand, the recent rally looks a bit parabolic. The price of gold surged $200 or about 15 percent in just two months. Thus, a correction of recent gains is possible, especially that the White House softened its trade rhetoric, while the expectations of further Fed cuts may be slightly exaggerated. The U.S. unemployment rate remains low, while the GDP growth solid, so the state of the domestic economy does not justify further cuts, at least not now.

However, the Fed can be under pressure of the White House and the Wall Street to deliver more accommodation. Yesterday, Chicago Fed President Charles Evans suggested that more easing could be reasonable. And one shouldn’t underestimate the power of fear. Investors started to be really worried that the world is heading for another financial crisis. After all, when the Fed started to cut interest rates in 2007, it did not prevent the Great Recession. When investors fear recession – rightly or wrongly – gold’s train becomes harder to stop.

It’s true that the safe-haven demand for gold is often short-lived. Gold’s journey will not be linear, we will see, as always, ups and downs. However, the fundamentals are blessing a path higher. Weren’t it for the strong dollar, gold could perhaps gain even more. The bottom line is that after a correction (or a profound decline that could still take place based on multiple technical signs), it’s not unreasonable to expect well-bid gold prices – of course, unless we see a trade deal or the hawkish turn among the central banks.

If you enjoyed the above analysis, we invite you to check out our other services. We provide detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD

Sunshine Profits’ Gold News Monitor and Gold Market Overview Editor

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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