Gold Price Forecast: What Will the Dollar Bring in 2018?

Saturday, December 23, 2017

gold bars and coins

Anyone who follows gold with any regularity knows how important the price of the dollar is relative to the price of gold. If the dollar dips, it’s gold that benefits. But will the precious metal see a strong dollar in 2018, particularly as the Federal Reserve looks primed to raise interest rates yet again?

There are a few familiar ways of gauging the chances for gold—looking at both the strength of the dollar and the confidence in the economy, not to mention the potential for the Fed to move—but let’s bring in a number of these variables for a comprehensive look at gold’s potential performance for 2018:

Tracking the Dollar Index at the End of the Year

First, some context: the U.S. dollar is ending the year with an up-and-down quarter. See the chart below, courtesy of MarketWatch.com:

Gold’s dip during the burgeoning strength of the dollar on that chart is obvious—but that’s not news to anyone who watches both markers on a regular basis. What’s clear from this chart, however, is that the dollar’s individual quarter performance is not precisely linked to the exact machinations of whether or not the Federal Reserve is raising interest rates. That could be a powerful insight, especially in the first quarter of 2018.

What to Expect from the Federal Reserve

Some analysts speculate that the Federal Reserve could raise interest rates as much as 3 times next year—but wise investors know that these projections don’t always work out in reality. It may be that the economic conditions next year don’t lay the groundwork for those three hikes in the Federal Reserve’s minds. Though Jerome Powell, future head of the Fed, is expected to function much like his predecessor in the role, there’s simply no telling what happens in 2018.

It’s true that the recently passed tax bill could inspire some confidence in the markets, particularly with the strong year 2017 just had in the absence of these tax cuts. But that’s no prediction of whether or not the dollar will loosen or tighten, or whether markets may head south in 2018.

An Average Gold Price Slightly Higher in 2018?

Although each of these signs are hard to read, there is some optimism out there—although it appears to be light for the moment. The most obvious example is the recent BMO Capital Markets report that sees gold moving to about $1,280 per troy ounce in 2018…which is not far from its potential closing mark here in 2017.

That suggests only a slight gain for gold, but it doesn’t necessarily mean that investors can’t ride their way to higher prices with the appropriately-timed buys. For example, if gold dips down closer toward $1,200, this could represent an optimistic prediction that suggests gold is undervalued at the time. If we see those prices early in 2018, it might be a good time to buy, especially if the trends in 2018 reverse the trends we saw in gold for 2017—namely, a strong year for gold shortened by some tepid returns in the latter half of the year. Gold investors have plenty of be optimistic about, but there are plenty of obstacles along the way.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.