While the commodities complex flourished last year, gold was a surprising laggard, but some market observers believe that with inflation persisting, the yellow metal could be in store for 2022 upside.
Should that prediction prove accurate, it could provide support for miners stocks and exchange traded funds, such as the VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ).
Technical analysis indicates that gold could be due for some upside, and if that proves accurate, $2,000 per ounce and a high of $2,075 per ounce could be in the offing.
“Since March, gold has maintained a series of higher lows. Even more important, note the many positive volume swings and bullish key reversals. With this week’s close above $1,835, gold hurdled its initial downtrend,” reports Andrew Addison for Barron’s.
Assets such as GDX and GDXJ are highly relevant in a gold rebound scenario because miners are highly sensitive to spot gold’s price gyrations. Looked at another way, if bullion rallies in earnest, it’s possible the stocks residing in GDX and GDXJ could overshoot the yellow metal.
“From here, $1,880 is the critical level to overcome. A close above that level would mark the first time that gold surmounted a prior high since it declined from its $2,075 peak. And overcoming a prior peak would represent a clear change in its vital signs,” according to Barron’s.
Gold has ground to make up following last year’s disappointing showing, but it could be showing signs of shaking out of that funk with the help of a small gain over the past week and a modest year-to-date increase.
Additionally, the macroeconomic climate is conducive to owning gold. With global growth expected to slow and inflation running hot in the U.S., investors are looking for assets with track records of proving durable against the backdrop of rising consumer prices. Gold checks that box.
Perhaps it will be inflation that powers gold to and past all-important technical levels, which could stoke further upside over the course of this year.
“Perhaps even more important, gold closing above $1,880 would be a major breakout above a 15-month downtrend. It would be a signal to add to positions because it would generate upside projections to test final strong resistance in the $1,950 area. And breaking out above a 15-month downtrend would attract more buying from trend-following algorithmic traders,” notes Barron’s.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.