By Michael Kahn
With the Federal Reserve potentially raising interest rates this year and a stronger U.S. dollar being a likely result, gold’s rally could be nearing an end. After all, gold and the dollar generally have an inverse relationship.
However, as a chart watcher I think that all of this is already in the metal’s price. Therefore, analysis of the trend and other supporting factors gives us better odds of gold’s next move. Right now, gold is indeed tired but overall the rising trend is still very much intact. I look for higher prices later this year.
Let’s start with the big picture and trace a brutal four-year bear market (see Chart 1). After peaking in 2011 at a price of $1,923.70 per troy ounce, the yellow metal slid down to $1,045.40 late last year.
However, for at least two years the decline was rather slow and drawn out. Aside from a gentle slope on the chart we can also see momentum indicators at only marginally bearish levels. Gold seemed to be sliding on a lack of interest rather than a strong desire to sell.
The SPDR Gold Trust exchange-traded fund (ticker: GLD ) concurred as it saw lighter than normal volume for two years going into the low. However, when prices finally started to head higher this year, volume swelled to roughly double that pace. Clearly, something happened to wake the market up, and I can only conclude that true demand is suddenly back in place.
Gold and the gold ETF are both above all of their major moving averages, and the shorter averages are above the longer ones for the first time in three years. That gives us a better idea that the trend truly has changed from down to up, and it is reasonable to call this a bull market.