Forecasting Gold During A Bumpy Week: Is The Optimism Over?

Friday, April 28, 2017

gold and money

When forecasting the price of anything, there can be some inherent bias depending on when you forecast from. When gold is riding high, it’s tempting to see optimism—when gold is riding low, it’s tempting to look the other way. There’s no question that this week up until now has been interesting for gold—but determining where the precious metal is headed will require looking at some familiar indicators that have nothing to do with the performance of gold  in late April.

Gold Reacting To International News?

With Emmanuel Macron doing well in the first round of French elections earlier this week, some optimism surged in the stock markets. That, in turn, provided some downward pressure on the price of precious metals like gold, thanks to the perceived relationship between the stock market and a “hedge” investment like gold.

But such headlines are short-lived, which makes them poor fodder for making forecasts. Late Wednesday, gold showed some signs of life, picking up a few points in the afternoon, while the overall markets were mixed. That doesn’t necessarily mean an end to pessimism this week in the price of gold—but it does show that not every day will go according to the week’s early headlines.

When forecasting gold, it’s generally better to look at other variables—like the US Dollar Index—to see where things may be headed.

Mixed Results From USD

MarketWatch’s convenient charts show that the USD was mixed for the week, even taking a dip yesterday. This is interesting, as a contrasting relationship between the USD and gold is supposed to exist. Perhaps gold’s fundamentals are not as weak as some experts might say—and perhaps headlines have too much to say about the stock markets.

Of course, it’s difficult to gauge this much from one simple chart—particularly with such a small sample size, such as the last five days of trading. Even so, this is an interesting variable that merits watching if you want to track the price of gold.

DailyFX Sees Gold Continuing Lower featured a Daily FX analysis that sees gold having a hard time perhaps in the next few weeks—there seem to be many experts who see the mid-1200’s as gold’s natural level for the moment. Although some investors do seem to like slower growth for the yellow metal on the year, there’s a chance that gold may not grow at all in May.

Where is the momentum heading? Before the recent ebbs and flows, gold had been showing a surging April, flirting even with $1,300 from a start in the mid-$1,200s. That suggests a potential momentum beyond the current headlines—even if those headlines show few signs of subsiding.

Chances are, many gold investors take the long view and aren’t as concerned with international headlines as some traders seem to be. With a new month on the immediate horizon, it’s clear that we’re in “anybody’s guess” territory. For the optimists, that might actually be a good thing in precious metals. 


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 [email protected].