It might be hard to fathom with all the bullish attention gold has been getting this year, but the SPDR Gold Shares (NYSEArca: GLD), the world’s largest physically-backed gold exchange traded fund, is off nearly 1% over the past month.
Still, GLD is higher by almost 15% on a year-to-date basis and some technical analysts view gold’s recent pullback as an opportunity rather than a cause for concern. Still, a case can be made that bullion and exchange traded funds like GLD have rallied too far too fast, meaning that if certain price points are taken out, the yellow metal could be vulnerable to technical selling.
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. A portfolio allocation of about 5% is adequate for a partial hedge against any more trouble ahead.
“Investors shouldn’t get too worried about the recent pullback in gold, according to Todd Gordon of TradingAnalysis.com,” according to CNBC. “As gold closed out its worst week of 2016 last week, Gordon said prices should be bolstered by key technical support, creating an opportunity for investors to buy. Additionally, he believes that inaction from the Federal Reserve will drive gold prices higher as investors expect lower interest rates.”
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.