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Hold off on gold price explosion; $2,000 won't come this year, here's why

Kitco News

Gold’s long-term price target is still $2,000, but that price level will not be seen this year, owing to several technical and fundamental hurdles that need to be breached first, this according to Lejun James Shao, a columnist for Seeking Alpha.

In a recent Seeking Alpha article, Shao said that gold needs to continue to rally into $1,800 an ounce before it completes its breakout move.

Spot gold traded 1.7% higher Wednesday, last trading at $1,715.70 an ounce.

“Gold ran to as high as $1,788 after its breakout run before pulling back due to the strength of the U.S. dollar. The U.S. dollar was weak in the previous week, then bounced up last week, and the gold price was strong in the previous week and weak last week,” Shao said.

Additionally, gold prices were forming a “cup and handle” pattern, which is a technical pattern that shows an advance, followed by a rounding bottom resembling a bowl. This could be followed by a subsequent breakout, which signals a continuation of the prior advance.

Shao noted that gold will need to break above $1,917 an ounce in order to complete its cup formation.

“The build of the cup formation started in December 2015, and now, already lasted more than 4 years and is yet to complete,” he said.

Fundamentally, Shao said that gold’s price movement will continue to be influenced by several key factors, including the direction of the Fed Funds interest rate, the strength of the U.S. dollar, demand and supply, and potential manipulation by “big players, including high-frequency trading houses.”

Gold miners have done well during turbulent times, Shao noted.

“GLD and GDX are up 10.97% and 2.25%, respectively, so far this year via S&P 500's 11.03% loss,” he said. “More gains will be seen if the gold run resumes later.”

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