How You Could Still Profit from Gold Despite Weakness

With money continuing to flow into the equities market and stocks, the gold market has seen an outflow of capital. The Ukraine situation appears to be under control, and with minimal geopolitical influences, the yellow metal has failed to gain any catalyst to move higher.

 The prices paid for goods and services, as measured by the Consumer Price Index, are under wraps, despite rising food and energy prices. The headline reading, including these two volatile items, jumped two percent in April in urban areas, which was the highest reading in 2014, matching the highest readings in 2013. Right now, inflation is not a major issue, but it could become more of a factor as we move forward. 

Moreover, we all know that the Federal Reserve is expected to eliminate its entire bond purchases by the year’s end, which will likely drive bond yields, interest rates, and the U.S. dollar higher. The result would be a stronger U.S. dollar and pressure on gold prices. 

And as I previously mentioned, there’s still broad interest in the stock market, which will impact the buying in the yellow metal. Investors are continuing to look for returns, and at this time, that isn’t gold. 

The gold story is a non-factor at this moment, and I think the best gains are behind us for the time being, as the precious metal traded at around $300.00 in 2002 and reached its highs in 2011. The long-term chart below shows the yellow metal in a decline. 

 

Chart courtesy of www.StockCharts.com 

The reality is that there’s simply no attraction in buying the yellow metal at this point, in spite of what the gold bugs will tell you. 

With minimal reasons to buy gold, the price of gold has fallen below some technical support levels and is heading lower on the charts. While the decline is technically oversold in the near term, we could see additional weakness down to the $1,200- to $1,225-an-ounce levels, based on my technical analysis. 

In my view, a decline towards $1,200 could generate potential trading opportunities to buy the SPDR Gold Shares (NYSEArca/GLD) exchange-traded fund (ETF) as it nears $115.00. The chart of the SPDR Gold Shares below shows two previous moves to this level that were subsequently followed by a rally. The same situation could soon surface again. 

 

Chart courtesy of www.StockCharts.com 

Aggressive traders could look to buy some of the SPDR Gold Shares on a move down to $115.00 and look for an oversold rally. Under this scenario, you could make some gains.