Gold’s Wild Ride: A Bullish Uptrend or a Bearish Freefall?

A couple of weeks ago (early May), the price of spot gold reached a high of $2085 an ounce, nearly challenging its all-time high of around $2089 last reached in 2020. Since then, gold's had a rough ride. Last week, prices plummeted almost $30 per ounce thanks to a strengthening US dollar, chillier risk vibes, and traders betting on another rate hike from the Fed in June.

Some gold experts are a bit worried. If gold can't stick the landing above $1,950 an ounce, it might be in for more nose dives.

What's plunging the yellow metal? A pumped-up dollar might have something to do with it. Solid US economic data has also sparked a change of heart about the Fed's interest rate hike. The CME FedWatch Tool suggests a less-than-30% chance of a 25-basis point rate hike next month.

Here's the thing: Inflation isn't easing fast enough for the Fed to hit the pause button, according to James Bullard, the St. Louis Fed President. So, expect some turbulence ahead.

Bullish or Bearish... Perhaps A Matter of Timing

On Friday, the price of gold got a boost when Fed Boss Jerome Powell hinted that there might not be a rate hike in June. The recent banking mess has tightened lending and put the brakes on the economy, so he reckons they might not need to jack up rates as expected. Let's look at the SPDR Gold Shares (GLD) ETF, a proxy for the physical metal.

CHART 1: SPDR GOLD SHARES (GLD) RETREATING. After its 2020 and 2022 peaks, GLD is retreating. Several critical points remain on the table, causing a tug-of-war between bulls and bears.Chart source: StockCharts.com (click on chart for live version). For educational purposes only.

In the above chart, the following points are worth noting:

• Despite prices falling over the last few weeks, GLD is still in a six-month uptrend (pink dashed line).
• The supporting trend line is rising toward the $180 to $182 level.
• $180 is also the 50% Fib retracement of GLD's second leg up. You can expect price to fall to just above $177 (the 61.8% Fib retracement level) without invalidating its bullish bias.
• Also, the $175 level sees a potentially strong support level (going back to 2021 and 2022) from which you might expect a bounce (blue horizontal line), should the $195 support level break.
• The Relative Strength Index (RSI) currently shows a divergence in price, signaling a near-term top. Still, its underlying trend, in addition to what the Moving Average Convergence/Divergence (MACD) shows, indicates longer-term tailwinds.

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Gold Price Targets: It's a Scattershot

As spot gold tries to get above and stay above $2,000 an ounce, price forecasts vary to almost a scattershot degree, depending on which bank, financial institution, or expert you ask. On the upside, there are reasonable-to-nearly outrageous numbers: For example, Bank of America sees gold at $2,100 an ounce while MKS PAMP has its sight set on targets like $2,070–$2,075, $2,200, $3,200, $3,500, and $3,600. On the downside, targets lurk at $1,900–$1,920, $1,850, $1,780, and $1,560–$1,600. 

The price of GLD is currently trading at around 9% of COMEX gold prices (so you'll need to make a slight mental adjustment when correlating the prices).

These forecasts are linked to major events, from the geopolitical conflict (like the one happening in Eastern Europe) to the US regional banking crisis to BRICS' de-dollarization maneuvers to the latest developments in the CBDC space.

The Bottom Line

The price of gold is experiencing turbulence on a track whose hinges are far from secure. It hit near-record highs two weeks ago, but a rising dollar and Federal Reserve rate hike uncertainty sent prices tumbling. Experts are a bit jittery and watching the $1,950 per ounce mark like a hawk.

Yet comments from the Fed's chief hinting at no rate hike in June gave gold a bump on Friday. In the end, however, the big moves are likely to be influenced by various and more large-scale global factors.

For now, keep your eyes peeled. Gold is in an uptrend over the last six months, but you can't ignore the potential for a price dip. Forecasts on where gold could end up are all over the map, with some experts predicting skyrocketing prices while others predict it falling lower. But as always, this is the thrilling world of investing, where the only constant is change.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.