If You Bet Against Gold Prices Now, You’ll Kick Yourself Later
Since early August, gold prices have been trending higher. The precious metal prices are up roughly eight percent since then. With this, there are a lot of questions about whether gold prices can continue to go higher or whether this is just a dead cat bounce from the lows.
When it comes to assessing gold prices, or the price of any other commodity or stock for that matter, I tend to look at it from two different perspectives: fundamental and technical. This clears up a significant amount of noise and helps me in making better, informed decisions.
Technical Analysis: Gold Price Outlook Decisively Bullish in 2016
Looking from a technical perspective, there are several bullish developments that investors must keep an eye on. Please look at the chart below of daily gold prices.
Chart courtesy of www.StockCharts.com
You see, gold prices have broken above their 50-day moving average (blue line in the chart above). This moving average is used to identify the direction of the intermediate-term trend. When the price breaks above this, it means the trend has turned and the price is trending upwards. Looking at the chart above, the intermediate-term trend on gold prices is to the upside. With this, remember the first and most important rule of technical analysis: the trend is your friend.
On the upside, gold prices could see some resistance around the $1,170-an-ounce area, the 200-day moving average. This is indicative of the long-term trend. However, I will not be surprised if gold price breaks above it without a hitch.
The reason I say this because when you pay attention to the momentum indicator, the moving average convergence divergence (MACD), it’s trending higher. This suggests buyers are coming in and controlling the price.
Fundamental Analysis: Gold Demand Soaring 77%
From a fundamental point of view, I continue see an influx in demand for the precious metal, and this phenomenon is making a compelling argument for gold prices going higher.
Consider this: in the first nine months of 2015, the U.S. Mint sold 670,000 ounces of gold bullion in American Eagle coins. In the same period a year ago, the Mint sold 379,000 ounces of gold in American Eagle coins. Simple math will tell you that the demand for gold coins at the U.S. Mint is running at more than 77% higher than last year. (Source: U.S. Mint web site, last accessed October 13, 2015.)
The U.S. Mint’s coin sales aren’t the only figures screaming “higher gold prices ahead!” There’s also the increasing demand from the central banks and the two biggest gold consumers, India and China. They suggest the same.
Furthermore, uncertainty in the global economy is increasing each day.China is at the forefront and the eurozone remains in trouble. In addition, the Federal Reserve not raising the interest rates tells us that the U.S. economy isn’t performing well. Know this, gold does great in times of uncertainty.
Where Are Gold Prices Headed?
Gold is ignored these days, but it continues to present a great opportunity for the long term. Don’t be shocked if the yellow metal ends positive for the year and moves significantly higher in 2016.
With all this said, investors should be paying attention to gold mining companies. They will provide the best returns if the trend in gold prices continues. To know which gold mining companies can benefit the most from higher gold prices, you can read more here: “Top 10 Gold Stocks Setting Up for Huge Rewards.”