Gold's Intermediate Trend May Turn Up

Gold continues to seek a way out of its doldrums. Various fits and starts have marked the price action all year. After the recent tumble below resistance at 1180, analysts saw a break below 1000 all but assured. Then it turned around. And now, after Friday's announcement that China would lower interest rates, it looks like hedge funds are making bullish bets. If that continues, we should see higher prices, at least in the short to intermediate term.

Offsetting this, however, we find an investment manager's caveat:

“Gold is facing a dual headwind at the moment, the strength of the U.S. economy against the rest of the world is making the dollar a lot stronger,” Clive Burstow, an investment manager at Baring Asset Management, which oversees $60.5 billion, said by phone Nov. 20. “Plus, people are beginning to worry when the U.S. will start to raise interest rates.”

While we don't say that gold has turned the corner and will commence its long-term bull market, we doubt that this guy's comments tell us anything we don't already know. The dollar has been strong for a while now, it didn't seem to stem a reversal of gold's price on Friday, and it's doubtful it will hold gold down if hedge funds pile in. As for the comment that "people are beginning to worry when the U.S. will start to raise interest rates,” you have to wonder where this guy's been for the last - at least - five years or so. Talk of higher interest rates has been out there in varying degrees ever since interest rates were slammed down during the 2008 crisis. While the primary concern has been rising bond yields, causing many if not most bond investors to shorten duration in their bond portfolios, higher interest rates keep falling on and off the Fed's agenda. So far, nothing. Besides, what's the worry? Higher interest rates won't necessarily slam gold, unless they exceed inflation to produces positive real interest rates, vs. positive nominal interest rates (interest rate minus inflation). A positive nominal interest rate doesn't seem likely for now.

So I guess the news of gold's rising price may interest traders for the time being. As for long-term holders of gold, the wait for a true turn back to bullish action continues.