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Is It Time to Turn Bullish on Gold after Its Recent Weakness?

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Gold trading with YTD losses

The SPDR Gold Trust ETF (GLD), which tracks physical gold prices, has lost 2.7% of its value YTD (year-to-date) through June 20. June is the third consecutive month of losses for the precious metal.

Since May, gold has been trading in a narrow trading range of $1,280–$1,305 per ounce. Even before breaching $1,300 per ounce on the downside, gold has been trading in a tight range for most of the year. Gold’s price peak in 2018 was $1,366 per ounce, which it reached in February. It’s currently trading at a YTD low of ~$1,270 per ounce.

Dollar’s strength pressuring gold

Geopolitical concerns and trade war concerns dominated the economic scene in May and June, which helped boost gold. However, gold’s price quickly reverted. The remarkable recovery in the US dollar (DXY) was the major driver of gold’s weakness after February. 

The PowerShares DB US Dollar Index Bullish ETF (UUP), which provides exposure to the dollar’s futures contracts, has risen 4.3% YTD and 8.3% since hitting its low on February 15.

The most recent bout of weakness in gold was due to the Federal Reserve’s stance, which was more hawkish than expected. In contrast, the European Central Bank (or ECB) decided to go easy on its monetary policy. This continued divergence in monetary policies helped US dollar gain further, pressuring gold prices.

Miners turned negative too

The VanEck Vectors Gold Miners ETF (GDX) has seen returns of -5.7% as gold prices have remained weak. There are also company-specific factors to be considered, which also impact the miners. Goldcorp (GG), Newmont Mining (NEM), and Royal Gold (RGLD) are among the few gold miners with positive returns YTD.

Please read Five Gold Stocks Analysts Love—and Five They Don’t for more information on gold stocks that are favored by analysts in this market. Several variables have impacted gold prices so far this year, including the progression of the US dollar, the Fed’s rate hike expectations, geopolitical concerns, and President Trump’s agenda.

In this series, we’ll explore these factors in detail and assess the direction of gold prices going forward.

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