From a fundamental perspective, current trends suggest demand in Asia is continuing to drive the majority of purchase activity, with China and India as the leading consumers. However, further price increases will need to be supported by stronger consumer and investment activity in developed nations as well.
A look at a three-year price chart shows a much different picture than recent trading activity has indicated. Many market technicians are pointing to the double bottom formation that has supported GLD at $115 and the potential for much higher prices after years of sustained declines.
The caveat is whether or not those lows can hold and ultimately support another leg higher.
The same can be said for gold mining stocks as represented by the MarketVectors Gold Miners ETF (GDX). This ETF has accumulated a similar technical pattern and appears to be trading primarily on the price action of gold bullion rather than the broader stock market which is making new highs. Gold mining stocks are typically more volatile and subject to wider price swings than bullion.
Ultimately, this directionless precious metal will find a new course and I will be able to assert a much stronger conviction for implementing it in my clients' portfolios. However, for the time being I am continuing to stand aside and wait for a more meaningful opportunity.
While I freely admit the wait can be frustrating, I believe patience will pay off as we get additional data to support a bullish or bearish case.
If you do decide to dip a toe into the murky waters that surround this sector, I recommend you do so with at trailing stop loss or sell discipline to mitigate downside risk.
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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