We are now preparing for what should be the final retracement in the gold price before 2016 highs are exceeded for good. The degree to which this retracement gives back recent gains is open to some variability, but the highest probability assessment is that gold will find support over the next 1-3 months within the $1,295 – $1,305 range. The subsequent advance should take prices above the 2016 peak at $1,378 en route to $1,400+ later this year and $1,500 by early 2019.
We expect a correction in gold will now unfold due to the important support zone that is being tested for the US dollar, which should lead to a multi-month rally for the US currency. As a backdrop, investors should recall that typically (but not always) the gold price and the US dollar move in opposite directions. We can observe this inverse relationship with an examination of the two asset classes over recent months:
Having observed the strength of gold’s surge following the successful retest of its long-term 2011 – 2017 downtrend three weeks ago, the theme for gold now becomes one of working to overcome 2016 highs over the intermediate term. Our focus must therefore change from one of concern that the retest might fail, which implies a more conservative posture, to the health of the long-term basing pattern that is now rounding upward in terminal fashion. We believe new highs for the move that began in 2015 are in store for this year. Retracements will still occur and they will be scary at times, but in the establishment of a new rising trend we should look to be aggressive amidst dips and not fearful on corrections.