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Is It a Good Time to Look at Gold?

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Is gold’s weakness an opportunity?

The SPDR Gold Trust ETF (GLD) has fallen ~8.0% year-to-date and ~11.0% from its April peak. The overall sentiment for gold remains quite bearish right now. Plus, it is also a seasonally weaker period for the precious metal, which could give investors an opportunity to buy gold at low levels and hold it as a hedge against economic uncertainty.

Two of the major factors weighing on gold prices (SGOL) since the start of the year and more prominently since April are the strong interest rate (TLT) outlook and the stronger US dollar (USD).

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Is the Fed becoming dovish?

Both of these factors have started showing some signs of weakness. As we’ve discussed previously in the series, the Federal Reserve’s latest comments from the Symposium were neutral to dovish as compared to hawkish expectations. It believes that as inflation is not showing any signs of picking up significantly, there doesn’t seem to be a risk of overheating. Many market participants are taking this to mean a marked slowdown in the pace of hikes come 2019. Moreover, the Fed has shown its growing caution over the escalation of trade issues, which could also mean a downside to its rate hike trajectory if the issues escalate much further.

Is this the time to buy gold?

The recent economic data out of the US (SPY) (VTI) is also slightly disappointing. Moreover, the bullishness in the US dollar (UUP) has reached a multiyear high. However, a large part of the bullishness is due to the safe-haven demand as trade issues unraveled. As these issues escalate further, however, the US economy could also be impacted, which would be negative for the US dollar as well. Thus, there is a downside risk to the US dollar, which is unraveling fast.

Gold’s record short position is also an opportunity for investors to pick gold while it’s still lying low. In addition, the physical gold buying from China and India usually supports gold more in the second half of the year. Thus, both technical and fundamental factors are signaling more risks to the upside for gold (GDX) (JNUG) than the downside.

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