Gold Hasn't Bottomed Yet But It's Close

Gold prices have been in decline since early September but any dips represent buying opportunities ahead of a significant move higher.

Gold prices have taken a break from their summer rally that saw the metal jump from around $1280 to more than $1550 an ounce. A period of consolidation was overdue, especially following the Q3 GDP early estimate which came in better than expected and had investors shedding safe haven assets.

Investors piled into gold during the summer but sentiment appears to be shifting in the other direction. Gold and silver ETFs just experienced their biggest weekly net outflow since the end of 2016.

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This indicates to me that the short-term selloff isn't quite over yet. The question now becomes how far does it still have to fall before it establishes a bottom?

I think the answer is below $1450 but probably closer to the $1400 level. Investors seem quite firmly in the risk-on camp and have been hesitant to bid up Treasuries, gold and other risk-off assets.

Today's statement from Larry Kudlow offering an optimistic take on the phase one trade deal is further bullish for equities and likely pushes gold prices lower from here.

I believe the long-term trend in gold, however, is up. My near- to intermediate-term price target is $1750. Slowing GDP growth in coming quarters along with what I believe will be higher inflation readings spurred by low interest rates and billions in Fed stimulus will fuel a good rally that will cover a good chunk of 2020.

How To Play This In Your Portfolio

Watch the price action in gold. If it dips below $1450, consider picking up some shares of gold ETFs. At any price below $1400, it becomes a buy.

There are a lot of calls being made out there for a gold rally over the next 12 months so there's a possibility that this could become a crowded trade. I maintain my conviction, however, that the fundamentals support a move higher in precious metals and we'll see that sometime in 2020.

ETFs To Consider

  • SPDR Gold Trust (GLD)
  • iShares Gold Trust (IAU)
  • VanEck Vectors Gold Miners ETF (GDX)
  • VanEck Vectors Junior Gold Miners ETF (GDXJ)

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