I like the look of gold in jewelry. But, as many of you know, I do not like gold as a buy-and-hold investment; my gold price forecast continues to demonstrate that the metal is only an option for traders.
Some pundits (a.k.a. the perennial gold bulls) continue to talk up the metal, saying prices will eventually target $2,000. I say baloney to this; at least for the next few years—unless something significant materializes that rattles the global economy.
The cash price of gold is near an 11-week low at around $1,172. The bulls say it’s time to enter. My response would be to hold on. However, we could be on the verge of a near-term trade.
Why My Gold Price Forecast’s Lackluster
I know we have ISIS continuing to wreak havoc in the Middle East. But in my view, it’s more of an oil play than a major impact on gold prices; unless, of course, the conflict escalates.
For now, gold is dependent on demand and interest rates.
India, the world’s biggest buyer of gold, is not exactly stashing physical gold away in its vaults.
China is storing large quantities of gold, but not enough to warrant the offset of the decline in consumer demand as the country stalls.
And we all know the Federal Reserve will likely decide to raise interest rates by September or October, which will drive up the dollar even more.
The generation of a better-than-expected 280,000 new jobs in May versus the consensus 227,000 could support higher rates. It was the most jobs gained in five months and the third-highest number over the past 12 months. The number of new jobs increased by 32,000 for March and April.
The problem for the gold bugs is this: since gold is denominated in the dollar, gold prices will rise as rates increase. But this will be countered by lower demand for the metal.
What the Gold Chart Says
As I said earlier, I feel that gold is for traders and not long-term investors. Yet additional weakness could see the metal bounce, setting up an aggressive trade. Gold is well down from its 52-week high of $1,344.81 in July 2014, but up from its range low of $1,132.91 in November.
Gold recorded nine new highs over the past 12 months versus 18 new lows. Over the past three months, the upside bias has improved, with 10 new highs and only four new lows.
Chart courtesy of www.StockCharts.com
While gold is in a death cross, with the 50-day moving average (MA) of $1,196 below the 200-day MA of $1,211 on weak relative strength, I view additional weakness down towards $1,140 as a long trade.
In November 2014, we saw a move to $1,140; followed by a rally and a second move back to $1,140—which was a bullish double formation. My view is that gold could rally back above $1,200 in the near term.
Ultimately, you can look to trade gold on these potential moves via the use of the SPDR Gold Trust (NYSEArca/GLD), or the futures market for experienced gold traders. You can also play it via call options on either instrument.