Can Gold rally through the remainder of 2017?

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The gold price is once again trading close to 10-month highs and once again attracting the attention of investors. The rally which started in late June has gathered momentum as tensions between the US and North Korea escalated.

Despite the price potentially encountering strong resistance as it approaches $1,300, sentiment remains in favour of gold. But, it’s not only geopolitical issues driving the demand for the yellow metal. There are other factors driving the gold price, and this is an opportunity to look at what may influence the price for the remainder of 2017.

The Indian Wedding Season traditionally supports prices between October and November. Gold has performed well during this period with August, September, November, and January being the best months for the metal between 1979 and 2016. The price has rallied in late September in 13 of the last 16 years.

On 1 July, the new Goods and Services Tax (GST) was introduced in India, which added 3% to the price of gold purchases in the country. This tax is in addition to import duties currently being levied. Precious metals dealers in Dubai immediately noticed a rise in demand from Indian buyers. The demand from Indian buyers in the UAE indicates that ahead of the wedding season the demand for gold is still robust.

Cryptocurrencies, in particular, Bitcoin and Ethereum, have taken some of the shine out of gold in the past few months as they compete for safe-haven status. But, the rising likelihood of a bubble bursting in the cryptocurrency market may also give Gold a boost.

While the fundamentals are mostly positive, the technical picture is more cautious. $1,300 is strong lateral resistance level, which the price failed to breach in April and June. Beyond that, there will be strong resistance to overcome between $1,340 and $1,370.

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If global inflation does return in a significant way, that will be positive for gold. But there is nothing to suggest that we will see a big enough upside surprise in the next few months to have any impact on the gold price. US inflation continues to remain softer than expected and rose only 0.1% in July.

Finally, gold’s fortunes are closely linked to those of the US dollar. The USD has been under pressure since January and is heavily oversold. A pause in the dollar’s decline would put pressure on the gold price, but that would probably be short lived.  The Trump Administration has so far failed to implement tax or healthcare reform, and economic data has been softer than expected. While the legislative agenda remains stalled, fundamental for the USD will remain weak.

If the tensions between the US and North Korea don’t escalate further, there may be a short term pause or pullback in the price. After that, it’s likely that the underlying demand will come into play and determine the trend going forward. While the technical picture shows that gold has a number of hurdles to overcome, the supply and demand dynamics may just be strong enough to overcome those hurdles.