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  • GLD’s stellar performance to start the year has lured plenty of supporters…and naysayers
  • Gold prices strengthened this year as market volatility triggered safe-haven demand
  • GLD and rival gold exchange traded products could get a lift this week following the Federal Reserve’s next meeting, which starts today

The SPDR Gold Shares (NYSEArca: GLD), the world’s largest physically-backed gold exchange traded fund, is one of this year’s best-performing ETFs regardless of asset class. GLD’s stellar performance to start the year has lured plenty of supporters…and naysayers.

Gold prices strengthened this year as market volatility triggered safe-haven demand. Nevertheless, more long-term investors who are seeking insurance through a gold play should not throw everything into the precious metal.

GLD and rival gold exchange traded products could get a lift this week following the Federal Reserve’s next meeting, which starts today. The Fed is widely believed to leave interest rates unchanged this week, which is seen as constructive for gold prices.

A potential problem for gold this year is that some market observers believe the Fed charting a course for more rate hikes, though at a measured pace, in 2016 sets the stage for further upside in the U.S. dollar. Of course, that would be punishing for gold and other commodities, which are denominated in dollars. Negative interest rates throughout the developed world are also seen as a catalyst for gold upside.

Although the current environment is supportive of higher gold prices, some market participants see the yellow metal’s upside as limited and this as the ideal time to take profits.

Oppenheimer technical analyst Ari Wald told CNBC “gold’s recent breach of its long-term downtrend calls to mind 1999, when gold rose powerfully in a short period of time to break out of a period of progressively lower prices.”

Bullion’s bounce has not convinced all market observers that a sustained rally is in store. Although precious metals ETFs have recently displayed some strength, gold is still in a lengthy bear market, giving some traders pause about how much more near-term upside the yellow metal has in store.

Gold has been in a 3-year bear market, which has seen failed rallies on the back of various news events. Continued strength in the US economy and labor market has offset political and economic events since the Gold market turned bearish in 2013.

Relative to what was seen with gold in 1999, “ a similar chart pattern has unfurled itself this time around, Wald says. Consequently, he expects only mild gains at best for the yellow metal in remainder of the year,” according to CNBC.

SPDR Gold Shares

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Tom Lydon’s clients own shares of GLD.