Gold Nears a Critical Juncture

MarketsETF Trends

This article was originally published on ETFTrends.com.

The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold-backed exchange traded products traded slightly lower last week, but some traders believe the yellow metal is still close to some key technical levels and that is a bullish.

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Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.

“In fact, it has tested key resistance of $1,375 per ounce, but it hasn't managed to break above that level. The $1,375 mark was the metal's highs from both 2016 and 2017, so a break above that line would give gold a technically significant 'higher high,'” reports CNBC.

Over the past 20 years, gold has outperformed alternative and traditional assets, such as developed market stocks, hedge funds, developed markets debt, global real estate investments and the broader commodities complex, according to WGC data.

“Of course, we always have to wait for an actual break of this key resistance level before we can declare anything. Still, investors should consider that any meaningful break above $1,375 would confirm that the multiyear downtrend has reversed,” according to CNBC.

Over the past four decades, there have been 10 major rate tightening cycles by the Fed. While some periods saw pullbacks in gold prices, as many periods still exhibited strong positive returns, notably in the 1977 to 1980 and 2004 to 2006 periods. The strength in gold may be attributed to factors like rising inflation expectations and rising rate-induced volatility in equities that pushed investors to safe haven assets.

Investors who want access to precious metals may consider a number of physically backed metals-related ETFs as a way to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.

For more information on the gold market, visit our gold category.

Tom Lydon’s clients own shares of GLD.

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