Gold had a fantastic start to the second half of the year as it finally took out long-term resistance of $1,350 in June. The price action attracted breakout traders who helped push the precious metal to as high as $1,557.07 in September.
Since then, the commodity has been retracing. The corrective price movement is driving some widely-followed traders to start taking a bearish stance on gold.
Nevertheless, bulls believe that the correction is to be expected. After all, the precious metal rose by over 15% weeks after breaking out of the $1,350 resistance.
For instance, full-time trader Adam Mancini thinks that the precious metal is simply consolidating in preparation for the next leg up.
Mancini is not alone in this view. We talked to an investment fund manager and he also sees gold continuing its bullish price action.
The Federal Reserve is Giving Gold the Ammunition It Needs to Climb Higher
Trading precious metals like gold can be quite tricky because its strength can also be its weakness.
Many consider gold as a safe haven asset. This often means that investors have to rely on a crisis to catalyze the price increase of the commodity. We saw this happen in 2009 when the global financial crisis ignited a parabolic rally that sent bullion’s price to the all-time high of $1,921.07.
When the economy recovered, however, gold retraced and traded below $1,350 for over six years.
Now, it appears that we may have another crisis on the horizon. That’s according to Lawrence Lepard, investment fund manager at Equity Management Associates. The sound money advocate and gold stock fund manager believes that the Federal Reserve’s latest moves are giving the precious metal fuel to run higher. He said,
“The Fed just announced their policies have failed and they will never stop printing money.”
The gold bug refers to the recent announcement of the Fed to purchase $60 billion worth of Treasury bills per month on top of extending their repo operations.
The fund manager also said,
As [the] market digests this, gold takes out $1,700 then $1,900 on [the] way to $5,000.
That’s a daring call but there are others who share his view.
Technicals Also Look Strong
The Fed is not the only factor that can drive gold higher. Technical indicators also look bullish. Lawrence Lepard retweeted a chart that shows that the gold price chart is painting a bullish continuation pattern.
The investment fund manager told CCN.com,
Technically, it is currently in a classic flag.
A bull flag tells us that gold is likely to continue its current trend. Considering that it breached resistance of $1,350 in June, technical analysis principles suggest that the precious metal would move higher after it consolidates.
If Lepard’s read is correct, the current pullback is simply preparing gold for a sharp move up.
Disclaimer: The above should not be considered trading advice from CCN.com.