Battle between bulls and bears
Currently, there are many factors playing on gold prices, some of which are bullish while others are bearish. While bulls are taking cues from the recent geopolitical concerns stoked by trade tensions, the Syria attacks, and the whimsical policies of the current US administration, bears are taking solace from the rising US rate hike expectations.
Resistance and support levels
Since the start of the year, several factors have boosted gold, the most significant being the geopolitical concerns. However, it has still been trading in a narrow range for the most part of 2018. Most of the movement has been sideways. While the resistance is close to $1,360 per ounce, the $1,300 per ounce level is seen as the support level. Gold bulls and bears are sweating it out in this narrow range. While currently, the factors to the upside and downside seem to be more or less balanced, to break out to either side would need a strong directional pull or push.
Bulls versus bears
The strengthening of the US dollar (UUP) and higher-than-expected rate hike expectations could pull gold towards its support and maybe even lower, while any fresh uptick in geopolitical concerns, policy uncertainty, and increased volatility in the equity markets could push gold prices upwards. Going by the most recent events, the possibility of the latter happening seems to be higher. Even as inflation inches closer to the Fed’s target, at its latest policy meeting, the Fed seemed calm and still sees a gradual rate hike to be the way forward. Rate hikes could cap the gains in the US dollar. On the other hand, despite the low probability of an escalation in a trade war, uncertainty has continued, which could create an upside for gold prices.
A positive movement for gold prices could have a significant impact on gold miners. Because miners are a leveraged play on gold, they tend to magnify gold’s gains or losses. Last year was an outlier in this context. Gold prices (GLD) rose 13.0%, and the gold miners’ index gained 11.1%. Miners (GDX) Eldorado Gold (EGO), Tahoe Resources (TAHO), Barrick Gold (ABX), and New Gold (NGD) reported negative returns of 55%, 49%, 9%, and 6%, respectively.
In the next parts of this series, we’ll look at some of the important factors currently impacting gold prices and their outlook. We’ll start by looking at Jeffrey Gundlach’s and Warren Buffett’s take on gold in the next two parts of this series.