The gold technical analysis today? Gold is trading within a tightening range, winding up on central bank outlook and economic data.
Gold forecast next 5 years? Gold prices could come under pressure from improving global economics and the rising tide of cryptocurrency.
The comex gold outlook calls for rising prices over the holiday trading week but we say watch out for resistance at key technical levels. Click Here To Go Straight To Our Online Gold Tutorial
One popular daily gold report suggests that there is solid accumulation between $1,240 and $1,300 but our 7 day forecast and current gold outlook say otherwise.
The gold technical analysis today shows a market experiencing volatility within a trading range, a market that is overbought and one highly susceptible to news, events and economic data.
A look to the charts shows gold is indeed trading within a range. that range is correlated to the Dollar Index and a wind-up in currencies driven by economic data and shifting central bank outlook.
The Near Term Gold Outlook
The near term gold outlook is one fraught with danger. The long term gold price forecast is equally treacherous. On the one hand economic data suggest improving conditions around the world and the need, eventually, for fiscal tightening from global central bankers. On the other hand, once strengthening hawkish outlook for a number of major central banks has softened undermining strength in currencies and resulting in a number of range bound pairings, specifically those involving the dollar.
The technical picture looks like this; gold is moving up steadily from a long term low but approaching a major point of resistance. The metal is trading within near and short term ranges, near the middle of a longer term range, winding up on expectations and narrowing in on what might be called “fair value”.
On the daily charts the next point of likely resistance is at $1,300 and the top of the near term range. MACD and stochastic are both bullish and moving higher suggesting a further move in prices can be expected but a break above resistance is still questionable. The risk in the indicators is that momentum remains weak while stochastic shows overbought conditions within the range. Assuming no catalysts emerge to drive it higher resistance is likely to contain prices in the near to short term.
- The expected gold rate tomorrow? Edging higher with a chance of breaking $1,300. The gold rate next week? It could drop on data, tax reform or Fed speak.
A move above $1,300 would be bullish but traders should be wary. Whipsaws, especially over the holiday trading season, are not uncommon when dealing with a range. A firm break of $1,300 with a subsequent confirmation of resistance turned support would allay those fears, especially if supported by fundamental news. A move such as this could take the metal to $1,360 and the top of a longer term trading range.
Central Banks And The Gold Outlook
Data aside, it is the central banks that have been driving the gold outlook over the past 5 years. Looking forward they will continue to drive the 10 year gold outlook and beyond. The number one bank to watch is the FOMC of the US Federal Reserve Bank.
The bank is on a path of policy tightening having already enacted 4 hikes in the past 2 years. The bank is expected to continue along this path with at least 2 and maybe as many as 4 hikes in the next year, all depending on the data.
Recent data points, along with statements from the committee and its chairperson Janet Yellen, suggest that the bank is in no rush to make the next hike. This is of course no surprise as the bank has long maintained a position that rates would remain low for an extended period of time, and the trajectory of increases would be slow and gradual.
FOMC outlook had, until 2017 that is, supported the dollar and pressured the gold forecast 2017 to long term highs. Events in 2017 however altered those trends. These events include a persistent weakness in underlying inflation that has slowly eroded forward FOMC outlook and by extension strength in the dollar.
The dollar may have fallen harder than it did were it not for persistent low inflation in the EU, the UK, Japan and other major industrialized nations to offset weakness in the US. Where banks like the ECB and BOE have been expected to anticipate enacting policy tightening strategies those expectations have been dashed by data. The data remains strongly positive but shy of expectations in many areas, giving little reason for world central bankers to rush to policy tightening.
The risk, especially in the US, is that long running trends in the economy suggest a period of substantial economic growth is ahead. The number one indicator of labor markets and least mentioned data point in mass media not only suggests a period of robust economic growth but a decade or more in which spikes to 6% QoQ GDP growth can be expected.
The KC Federal Reserve’s Index of Labor Market Indicators, the LMCI, has been pointing to robust economic growth for over two years and is only now being confirmed by other data points. The LMCI has predicted the past 2 major US economic expansions by crossing its zero line from below and did so again when it crossed above the zero level in late 2015.
- In the most current read of the LMCI momentum hit an all time high while activity continues to expand at the fastest pace since before the housing bubble burst.
The LMCI is a composite of 24 labor indicators watched by the Fed. It signaled the onset of the tech boom in the early ’90’s and the housing boom in the early ’00’s. Both of those periods were characterized by above average economic growth with spikes to 6% and above.
The Conference Board’s Index of Leading Indicators has been pointing to sustained economic growth over the past year. It has recently spiked to 1.2% in confirmation of anticipated expansion of growth. This index has been positive for the past 14 months, economists at the Conference Board expect “solid growth” into the first half of 2018 at least.
While this data could be expected to strengthen the dollar it is also expected to further growth in global markets which will in turn strengthen global currencies leaving the dollar range bound. The 10 year gold outlook suggests it will remain range bound as well, the question is where will gold prices travel within that range?
Gold Forecast Next 5 Years; Range Bound And Sideways
The long term monthly charts suggests gold prices could remain range bound near current levels over the next year or more. It also suggests longer term ranges could persist for the next 5 to 10 years.
MACD momentum is bullish but only barely and has been trending near the 0 level for all of 2017. This shows a market whose participants are not fully engaged, whose attention may be focused elsewhere. Stochastic has been trending sideways, if higher, within the middle portion of its range during the same time and consistent with a range bound, directionless market. Our gold price forecast for the next 5 years is range bound with possible tops at $1,360 and $1,430.
The weekly charts are much the same. They show the metal trending within a long term range with some upward bias. Prices are moving up from support at the bottom of the range with additional support from the long term 150 day moving average. Prices have an eye on testing resistance targets at $1,300 and possibly higher. MACD momentum is still bearish but rolling over, suggestive of shifting momentum, while stochastic confirms the move with a bullish crossover. Gold price forecast 2018 targets remain the same; $1300 with an outside chance of retesting the longer term range at $1,360.
The World Gold Council Gold Outlook
World Gold Council data shows significant declines in overall gold demand for 2017. With world economies expanding, risk on appetite returning to the market and the FOMC set to tighten policy the outlook for 2018 is not much better.
The third quarter of 2017 saw another quarter of YOY declines. Total demand fell 9% in the quarter bringing the year to data decline to minus 12%. Jewelry demand was the weakest, accounting for a full 3% of the YTD total, although there was notable weakness in ETF’s as well.
Total jewelry demand fell 25% in the 3rd quarter. Demand was weakest in India, a traditional stronghold of gold ownership, and not expected to rebound significantly in the near term. Changes in tax and regulatory laws are making it harder and more expensive to purchase and own the metal driving smaller operators out of the market. Alternatively, US jewelry demand surged to a 7 year high.
ETF inflows were positive for another quarter but at a much slower pace than the previous. Total ETF purchases were a mere 18.9 tonnes vs the 144.3 tonnes purchased in the 3rd quarter of 2016. While safe haven and risk-hedging investment is still present surging equities markets have captured investor focus. According to the council gold investors lacked a catalyst to drive purchases in gold (because of surging equities markets). That being said total holdings of gold backed ETF’s are now at the highest level in over a year.
There were some signs of isolated strength in gold demand. Leading this was purchasing by central banks followed by investment from the bullion community. The worlds top bankers are responsible for 111 tonnes in purchases, up a whopping 25% over the previous year. These purchases are led by Russia, Turkey and Kazakhstan which has been purchasing gold heavily over the past 5 years. Together those three central banks account for 95% of all central bank purchasing.
Coin and bar investment surged 17% albeit from previously low levels. Last year’s Q3 coin and bar numbers were the lowest since Q1 2009 making this years gains less significant than they might otherwise be. This leaves Q3 investment below the 3, 5 and 10 year averages and trending lower.
- Demand for bullion was strongest in China where investors bought on the dips for a fourth quarter in a row.
US bar and coin investment was especially weak in light of last years near record levels. Range bound prices have caused traders to sit on the sidelines or move to stocks looking for better returns. Year to date 2017 levels are the lowest in 10 years and likely to persist into next year as spot prices continue to move sideways.
Tech demand for industrial gold was also strong. Demand growth is driven by the chip makers and specifically those powering the ever growing smart phone market.
The data, all told, shows demand at the lowest levels since the third quarter of 2009. Demand has been in decline since hitting a peak 2 years ago, in tandem with the start of the Fed’s tightening cycle, and has set the metal up for potential price declines.
The caveat is that total production is on the decline as well and will help support prices in the long term. Total available supply fell by 2% YOY as production fell for a 5th quarter and signs of peak production persist. Total production was down -1% YOY and not expected to improve without the discovery of new technology or new untapped reserves. Recycling activity is also reported as down further reducing available supplies.
Current Gold Outlook; Possible Catalysts
There are a number of possible catalysts in the gold outlook, central banks notwithstanding. Top of the list is US tax reform which could impact gold prices in a number of ways. The most important being economically, specifically the impact of tax reform on US economic growth. US quarterly GDP growth is already expected in the range of 3% to 4% in 2018. The tax reform driven boost could put GDP growth at the high end of that range or above and strengthen the dollar without FOMC assistance.
The real risk to gold prices is inflation. Inflation is trending low now but could begin to expand at an accelerated pace very soon. If so this would drive the FOMC to alter their outlook, increase the pace of their rate hikes, strengthen the dollar and in turn weaken gold. The PCE price index, the FOMC’s favored tool to gauge inflation, is still trending below the Fed’s 2% target but has shown a noticeable uptick in the past 3 months.
The CME’s Fed Watch tool shows a 40% chance there will be 3 rate hikes by the end of next year. There is, as of this writing, a 0% chance of hike at the January meeting but this is followed up by a 62% chance at the next. By June chances of 2 hikes are at 40% and by September nearing 100%. Anything to increase that expectation will strengthen the dollar and likely weaken gold within its trading range.
Another possible catalyst is geopolitics. Geopolitical conflict helped support gold in 2017 and may continue to do so in 2018. The main driver on this front was North Korea and the threat of nuclear war. While headlines induced some volatility in the earlier portion of the year the effect lessened as the year wore on.
The Push And Pull Of Supply And Demand
Despite signs of weak and weakening demand one fact remains; there is a limited supply of gold. An analyst at Goldman Sachs, Eugene King, estimates there are only 20 years of mineable gold left. If this is true we can expect to see gold prices move higher as production dwindles, eventually hitting prices that would now be labeled astronomical.
Until then the market remains well supplied, driven by news and fiscal policy from the central banks.
The gold technical analysis today shows a range bound commodity, the gold outlook for 2018 is volatility within the range. The gold forecast next 5 years? A tug of war between improving economics and dwindling supplies to drive volatility in the gold outlook.