Gold Price Targets $1,300

Several signals show us that gold price is set to move higher toward the $1,300 region. Additionally, this will happen before any more significant retracement may be due. Finally, it is of course barring minor intra-week corrections that could occur at any time.  To arrive at this target, we examine both the relative strength of the gold mining complex and also the price action in silver. We base our analysis of these related but separate markets. We can then conclude gold itself still has further room to run over the intermediate timeframe.

Gold-Mining Sector

Let us begin by examining the relative strength of the gold-mining sector versus the price action of gold bullion itself.  Below we show the GDX large-cap gold mining fund on top with the price of gold immediately below it. It does not have standard annotations for a direct examination of relative performance.   The top green band shows that the gold miners are now back to a resistance level between 25-26 on the GDX fund. This previously reached both last August and immediately following the Trump victory in November. The two vertical grey bands correspond to these points in August and November. Follow the bands downward. There you can observe what the price of gold was the last time. You'll see the value of the mining sector near 25-26 on the GDX fund.

The last two times the GDX traded between 25-26, gold averaged $1,305 per ounce.

The gold mining complex is intrinsically related to the price of the metal itself. This is because the sector’s profits derive primarily from spot bullion prices. Gold is closing the week at $1,238 as of the last trade on the New York COMEX on Friday. The mining sector is already pricing in nearly a $67 per ounce increase in spot gold price. To further the case for the $1,300 gold target, we turn next to the latest action in silver.

Silver Analysis

As of Friday, we note that gold’s cousin rose for the 8th week in a row last week. It is rising 0.5% (0.10 cents) to finish at $18.03. This is as of the final bid in New York. We maintain a target of $18.75 for silver. We base this on the amplitude ($1.50) of the bottoming pattern. We observe this before the breakout above $17.25 in late January. It would be rare for silver price to achieve a higher target without gold moving higher as well. So, the silver analysis that follows has direct implications for the $1,300 gold target referenced above. Since the break above $17.25 two weeks ago, silver has been behaving near-perfectly from a technical standpoint. The rise has been steady yet slow. This leaves further room to advance on the RSI indicator. (top of the chart). An overbought signal registers above a reading of 70.

On Trendlines

There is an essential point that traders may wish to note on the silver chart. Our typical analysis bases on best-fit trend lines to use the term from statistical analysis. However, as the highs compose, the upper trendline does not fit correctly. (no trend lines ever will). We anticipate a breakout with some volatility along the way. It would also be wise to identify an absolute-highs trendline. Such is indicated above on the silver chart by the lighter dashed blue line.  If we use an absolute-highs trendline-- the declining primary trend would come in closer to $18.20. Which line is more relevant toward the breaking of silver’s downtrend? And what about the establishment of a new period of rising prices?

Generally, the breaking of a best-fit line is most critical.

However, the absolute highs line is essential to keep in mind. This is solely for the reason that some traders will focus on it. We should expect some traders to treat it as the defining trendline for the first decline. This will begin in July 2016. As such, some short-term selling pressure will be there. In due time, those sellers at $18.20 should go out during the upcoming advance toward $18.75. This is if our technical targets are to meet. From that point onward, we will have to re-assess the silver’s short-term setup.

Silver is Leading Gold Price

Silver breaks through the best-fit trendline of the declining primary channel. (royal blue). Silver now finds itself directly in a challenge with the trendline of the absolute highs. We can expect grinding price action lasting up to 2 weeks underneath the perfect highs trend line. Prices should be well-supported by the $17.25 support level. (black line). We expect that the absolute highs trend line will break within the next two weeks. When it does, the advance toward the $18.75 target will be quick. It will need only 3-5 trading days to reach this level.

Keep in Mind

Please keep in mind that silver is prone to overshoot technical targets – both to the upside and to the downside. Silver is an extremely small market at only $20 billion in annual physical sales. Should silver exceed $18.75 on this move, a surge to $19.75 is not out of the question. This is as an overshoot by mid-April. Once we observe the price action around the next high, we will begin to gauge the potential for an intermediate retracement. The price action of both metals is set to get increasingly volatile through 2017. Yet as the investment adage goes: “with volatility comes opportunity.”  

Christopher Aaron, Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. The CIA is where he specialized in the creation and interpretation of the pattern of- life mapping in Afghanistan and Iraq. Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature. His strategy of blending behavioral and technical analysis has helped him and his clients. It helps to identify both long-term market cycles and short-term opportunities for profit. This article is third-party analysis. It does not necessarily match the views of Bullion Exchanges. Readers should not consider it as financial advice in any way.