Gold: Its Not Just a Fed Trade

(June 10, 2016 - by Kira Brecht, Kitco Newsby)

Market Alert: In recent months, the short-term trading crowd has hijacked the gold market.

Momentum traders and opportunistic day and swing traders have driven the price of gold higher and lower, on shifting whims and expectations regarding when the Federal Reserve might hike rates next.

Sure, monetary policy is one factor that impacts gold, but long-term gold investors need to remember that the yellow metal is much more than just a Fed trade.

Here are 7 reasons why investors like gold:

Gold is a wealth preservation and wealth building vehicle.
Gold is a "hard" currency that can’t be debased or devalued by a government printing press.
Gold is a safe-haven asset that gains in value during times of risk aversion, political instability, war.
Gold is an inflation hedge. Gold can help protect your purchasing power.
Gold is a portfolio diversifier. Gold is an alternative asset with a low correlation to stocks.
Gold is an insurance policy, a hedge against global financial meltdown and calamity.
Negative interest rates. Central banks have resorted to negative interest rate policies in an attempt to stimulate economic growth. Even more worrisome, central bank policies aren’t having the desired outcome of their goals.

Chart Talk

Gold could be forming a bull flag pattern on the monthly gold chart. A strong sustained rally and upside breakout above the $1,305 region would confirm the bullish pattern and open the door to a new rally phase. See Figure 1 below.