Gold Price Prediction – Prices Continue to Rally Breaking Out to Fresh 7-year Highs

Gold prices continued to rally after breaking out on Monday. Gold appears to be benefiting from the risk-on trade, which has helped equity prices rally. The dollar started to break down which has also helped gold prices gain traction. Since gold is priced in dollars, a declining dollar generally points to elevated gold prices. Yields edged lower but were nearly unchanged. Gold volatility, reflected by the VIX of gold, is hovering near the 29% level which is well above the 12-month average near 15%.

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Technical Analysis

Gold prices surged higher continuing to hit 7-year highs and poised to test target resistance near the August 2012 highs near 1,791. Support on the yellow metal is seen near the March highs at 1,703. Additional support is seen near the 10-day moving average at 1,648. The trend is moving higher. Not only did price action generate a fresh higher, but the 10-day moving average hit a 7-year high.

Short term momentum is positive as the fast stochastic generated a crossover buy signal. The trajectory of the fast stochastic is upward sloping which points to higher prices. The current reading of the fast stochastic is 94, above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum has also turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The MACD histogram also generated a crossover buy signal, and now the trajectory is moving higher which reflects accelerating positive momentum. The relative strength index (RSI) is also accelerating higher. The current reading on the RSI is near 69, just shy of the overbought trigger level of 70.