Buying Gold: Analyzing the Short-Term and Long-Term Outlook



Is a short-term rebound possible?

As we discussed previously, there are some factors that could point to a short-term rebound in gold prices. Gold prices rose 1% on August 11 due to China’s yuan devaluation move. While devaluation gives the US dollar a boost, expectations of uncertainty in the currency markets help the safe-haven appeal for gold.

The oversold sentiment for gold is also supporting the physical gold demand in its traditional markets, like China and India, and also in the US. This could be a short-term positive for gold prices.

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Long-term trend remains downward

A short-term rebound could happen. Overall, in the long-term, gold is poised to go lower based on factors like the strengthening US dollar. Previously, we discussed factors that could cause the US dollar to go higher going forward.

The Fed rate hike expectations keep on adding fuel to the fire for a fall in gold prices. The Fed will have August’s data to review before it can decide on the rate hike in its meeting on September 16–17. This gives August’s release of inflation and US employment figures added importance.

In this regard, the remarks from Fed members have been mixed lately. While they concur that the employment market is healthy, inflation data doesn’t give much confidence for a hike as early as September. The recent devaluation move by China might also be an added deterrent to a rate hike in September. However, the September rate hike isn’t completely off the table. Even the expectations of a rate hike in December are enough to keep the lid on the gold prices.

In turn, this would be negative for gold prices (GLD) and gold stocks like Newmont Mining (NEM), Kinross Gold (KGC), and Yamana Gold (AUY). It also affects ETFs like the VanEck Vectors Gold Miners ETF (GDX) that invest in these stocks. These three stocks account for 12% of GDX’s holdings.


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