Daily Gains Letter

Gold Prices Setting Up for Profitable Trading Opportunity?

By for Daily Gains Letter |

Bullish gold pricesWith the stock market scrambling to find buying support and with the May West Texas Intermediate (WTI) back up around $50.00, I’d like to take a closer look at gold prices.

Why Gold Prices Are Catching My Attention

Everyone is aware the Federal Reserve will likely take the next steps and begin to raise interest rates either in July or by September, which will help drive up the dollar. A strong dollar translates into lower gold prices, which will help to keep some pressure on the demand side for the precious metal.

Yet a look at the charts shows a potential trading opportunity in the works, despite the futures chain showing the price of gold staying around $1,200 to $1,215 an ounce for much of the next three years. June 2018 gold is trading at $1,214 an ounce.

Take a look at the chart of the gold spot price below:

Gold spot price

Chart courtesy of www.StockCharts.com

The chart shows a bullish double-bottom formation and a potential opportunity for some quick gains. The first bottom was in November 2014, followed by the recent bottom at around $1,140. A move upwards could see the metal drive up to around $1,300, an increase of about eight percent. In 2014, gold spot prices also staged a double bottom at around $1,190, with an eventual upside push to $1,400.

Having said all of that, I doubt a rally would be sustainable at this time, given the associated strength in the dollar.

Economic Factors Supporting Higher Price of Gold

Supporting factors for gold bullion prices include the rising crisis in battle-torn Yemen, which is likely heading into a civil war if the situation intensifies.

There is also the increasing global risk from ISIS in the Middle East, as the rogue group spreads through Iraq, Syria, and Yemen. Iran is also a wildcard. Iranian forces are in Iraq, trying to push back ISIS. On the other hand, the country is in the midst of discussions regarding its nuclear weapons program.

As geopolitical risk is supportive of higher gold prices, any worsening of these situations, especially in Yemen and with ISIS, could drive gold bullion prices much higher.

The negative for higher and sustained gold prices is the rising dollar, the lack of major inflation globally, and continued lackluster buying from the likes of India and China.

Conclusion: Gold a Trade Opportunity Right Now

You should look at gold as a trade and not a buy-and-hold investment for the time being. The most straightforward strategy to play gold is through an instrument like a gold-focused exchange-traded fund (ETF), such as the SPDR Gold Shares (NYSEArca/GLD). Of course, this is only an example, as you can also consider playing this trade opportunity through equities.

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