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Gold has been looking good for the past two years. The main reason why is because it's been carving out a bottom, which will likely result in a major upcoming bull market rise.
In fact, gold hit bottom in December 2015 and a big change has been taking place since last year.
Low interest rates have been a positive for gold and the metals. Since gold doesn't pay any interest and interest rates are still very low, they don't give gold much competition.
Plus, rising inflation expectations have provided some glimmer for gold because gold is the leading hedge against inflation.
But mainly, demand for gold as a safe haven continues to grow, and uncertainty plays a big part in this demand. Be it financial, economic or political, there are many areas of uncertainty in the world today. So countries and individuals continue to accumulate gold.
This alone has provided a foundation under the gold price, which has been part of this bottoming process.
For now, let's take a look at gold's big picture and you'll see a few of the reasons why we're calling 2016-2017 the turnaround time for gold...
GOLD'S TECHNICAL ACTION
Geopolitical turmoil, unsustainable monetary policy, laws that turn bankers into alchemists, unsustainable increases in social benefits that fuel sovereign deficits, and rising debt are direct causes that pushed gold to its peak in September 2011.
Uncertainty was at one of the highest points in history, if not the highest. But the world did not implode as many had feared.
Moreover, the Keynesian tonic against depression was already starting to show positive effects according to some in the United States. The European Central Bank was just setting its sails. It was ready for the winds of monetary easing.
A period of perceived stability began. As uncertainty eased, so did safe haven demand. Gold started to decline. It returned to an old median that had triggered a renewed leg up in gold's secular bull market back in 2009, the 23 month Moving Average (“MA”), which identifies gold's mega trend.
Gold broke below its 23 month MA in early 2013 triggering a major shift in trend. Shortly after, gold broke below $1536, a key support and collapsed as demand suddenly dried up.
Gold then rebounded after its waterfall decline and resisted near $1380. Since then, every significant rebound rise has found strong resistance at this same level.
Eventually, lackluster strength pushed gold lower. Gold reached its low in 2015 near $1035. The decline was nearly 50% from the 2011 peak, coincidently in line with the 50% retracement rule which is used to identify technical price targets.
The kettle of uncertainty started to heat up again. Lackluster growth remained a constant. It fueled renewed concerns over growing sovereign deficits and debt.
Slowly, renewed demand for gold started to push its price higher, and in 2016 gold broke back above its 23-month MA. For the first time since 2013, gold turned bullish on a cyclical basis.
Last year, gold reached a high in August. The same level was once again tested, near $1380. However, despite pulling back from the highs in 2016, gold rose back above its MA and it has stayed above this key cyclical bull market trend, currently near $1250.
For now, gold will stay bullish by staying above $1250. And the current short-term weakness is providing a good buying opportunity if you haven't yet bought gold or want to add to your position.
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