Traders in tumult are turning to gold, with the current gold price of roughly $1,990 the result of a strong run-up in recent days – but is the upside here to stay or a fool’s gold rally?
“Gold should not be moving up for a lot of reasons,” said George Tkaczuk, portfolio manager at RCM Wealth Advisors, during Investor’s Business Daily’s “IBD Live” show. “Commodities 101 says all commodities are priced in dollars, so if we have a strong dollar, these things should be going down. They’re not.”
While a stubbornly strong dollar would typically keep a lid on gold prices, the surge of interest in the precious metal is primarily driven by unrest in the Middle East. The recent war between Israel and Hamas has acted as a significant catalyst for the gold price rally. Gold is widely considered a “safe haven” asset during times of uncertainty.
There is also noticeable weakness in banks and bearish earnings reports, as the Federal Reserve has reiterated the potential for higher interest rates. This has led to speculation of further tightening.
Global Strife Spurs Gold Price Rally
Traders can mirror the gold price move through the SPDR Gold Shares (GLD) exchange-traded fund, which serves as a proxy for the price of gold bullion.
On Friday, the GLD ETF came close to breaking out from a double-bottom pattern, closing at 183.59. This pattern consisted of a bottom in June at 175.79 and a second bottom in early October at 168.30.
Trading volumes have been high over the past two weeks, with the ETF’s shares rising by approximately 8% during this gold price rally.
Tkaczuk believes there is enough global strife for the gold price rally to continue. He points to selling accompanied by increased trading volume in the ETF at the end of September and early October, suggesting a sense of exhaustion among sellers. “It’s kind of like capitulation, meaning the sellers just maybe exhausted themselves,” said Tkaczuk. “Maybe everybody has their eye off of gold.”
While gold has rallied strongly recently, traders should approach the current breakout zone with caution. Typically, when a security experiences a significant rally over a short period, it may be due for a rest or pullback. However, momentum can sometimes dominate.
Taking a step back and looking at the monthly chart, gold is on the verge of a potentially bullish long-term move. Technical traders can identify a multiyear cup-with-handle pattern on the chart dating back to 2011.
If the saying among breakout traders holds true – “the longer the base, the higher the space” – a breakout to all-time highs for the GLD ETF could be worth monitoring. However, the gold price rally must first prove its ability to surpass prior resistance levels in the range of 185 to 190. Previous attempts in 2020, 2022, and May of this year were unsuccessful.
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