We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Gold has been among the most frustrating and underperforming assets over the past decade. However, below are five reasons that may change soon:
“When in Doubt, Zoom Out”
Investors often get caught up in small price movements when focusing on short-term charts, such as daily or hourly charts. While looking at charts has its positives like “feel for the tape” and timing, the negatives often far outweigh the positives. Short-term charts show frequent and random price fluctuations that do not always represent the underlying trend and tend to be “noisy.” The short-term noise can trigger emotional responses such as fear and greed, over-trading, and limited perspective. In contrast, long-term charts smooth the price action, reduce noise and emotions, and provide long-term perspective.
The SPDER Gold Shares ETF ((GLD - Free Report) ) is on the precipice of breaking out of a 12-year cup-with-handle base structure on the monthly chart. Should gold break out, the saying “The longer the base, the higher in space” should apply.
Image Source: TradingView
Geopolitical Turmoil
Gold is a safe haven asset during times of geopolitical turmoil due to its enduring value and universal acceptance. When political tensions escalate, or international crises occur, investors often seek refuge in gold because it is not tied to any specific government or country, thus shielding it from political instability. Moreover, gold is a hedge against currency devaluation and inflation, preserving wealth when traditional assets falter. With the ongoing war in Ukraine and the rapidly escalating war in the Gaza Strip (Israel is rumored to go on a ground offensive any day now), gold should act as a refuge in a sea of uncertainty.
Steady Price Action Despite Dollar Gains
Gold and the US Dollar often exhibit an inverse correlation, meaning they tend to move in opposite directions. The inverse relationship is primarily due to how investors perceive these assets during times of economic uncertainty. When investors have confidence in the US economy, they are more likely to invest in the dollar and other financial assets, leading to a decrease in demand for gold and subsequently causing its price to fall. However, the inverse correlation is not sticking in the current market and should be telling for prospective gold investors. Though the Invesco USD ETF ((UUP - Free Report) ) is shooting for its 14th straight week of gains, gold is up more than 10% this month. When the dollar inevitably corrects, gold will likely be the main beneficiary.
Image Source: TradingView
Seasonality Tailwinds
Historically, gold is somewhat choppy to slightly positive into year-end. However, its strongest seasonal period kicks in at the beginning of the new year. Could these seasonal tailwinds finally induce a breakout out of the more than decade-long base?
Image Source: Equity Clock
BRICS Gold Standard
The countries that comprise BRICS (Brazil, Russia, India, China, and South Africa) plan to introduce a gold-backed currency as an alternative to the US Dollar. Should the plan come to fruition, gold demand would immediately soar.
Conclusion
Despite a decade of underperformance, gold is poised for a bull run. Five factors collectively suggest a promising outlook for gold, with the potential for a significant breakout in the near future.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
A Golden Opportunity: 5 Reasons to Be Long Gold
Gold has been among the most frustrating and underperforming assets over the past decade. However, below are five reasons that may change soon:
“When in Doubt, Zoom Out”
Investors often get caught up in small price movements when focusing on short-term charts, such as daily or hourly charts. While looking at charts has its positives like “feel for the tape” and timing, the negatives often far outweigh the positives. Short-term charts show frequent and random price fluctuations that do not always represent the underlying trend and tend to be “noisy.” The short-term noise can trigger emotional responses such as fear and greed, over-trading, and limited perspective. In contrast, long-term charts smooth the price action, reduce noise and emotions, and provide long-term perspective.
The SPDER Gold Shares ETF ((GLD - Free Report) ) is on the precipice of breaking out of a 12-year cup-with-handle base structure on the monthly chart. Should gold break out, the saying “The longer the base, the higher in space” should apply.
Image Source: TradingView
Geopolitical Turmoil
Gold is a safe haven asset during times of geopolitical turmoil due to its enduring value and universal acceptance. When political tensions escalate, or international crises occur, investors often seek refuge in gold because it is not tied to any specific government or country, thus shielding it from political instability. Moreover, gold is a hedge against currency devaluation and inflation, preserving wealth when traditional assets falter. With the ongoing war in Ukraine and the rapidly escalating war in the Gaza Strip (Israel is rumored to go on a ground offensive any day now), gold should act as a refuge in a sea of uncertainty.
Steady Price Action Despite Dollar Gains
Gold and the US Dollar often exhibit an inverse correlation, meaning they tend to move in opposite directions. The inverse relationship is primarily due to how investors perceive these assets during times of economic uncertainty. When investors have confidence in the US economy, they are more likely to invest in the dollar and other financial assets, leading to a decrease in demand for gold and subsequently causing its price to fall. However, the inverse correlation is not sticking in the current market and should be telling for prospective gold investors. Though the Invesco USD ETF ((UUP - Free Report) ) is shooting for its 14th straight week of gains, gold is up more than 10% this month. When the dollar inevitably corrects, gold will likely be the main beneficiary.
Image Source: TradingView
Seasonality Tailwinds
Historically, gold is somewhat choppy to slightly positive into year-end. However, its strongest seasonal period kicks in at the beginning of the new year. Could these seasonal tailwinds finally induce a breakout out of the more than decade-long base?
Image Source: Equity Clock
BRICS Gold Standard
The countries that comprise BRICS (Brazil, Russia, India, China, and South Africa) plan to introduce a gold-backed currency as an alternative to the US Dollar. Should the plan come to fruition, gold demand would immediately soar.
Conclusion
Despite a decade of underperformance, gold is poised for a bull run. Five factors collectively suggest a promising outlook for gold, with the potential for a significant breakout in the near future.