Gold prices fell this summer when rising crude oil prices caused inflation, Treasury yields, and the U.S. dollar to climb. The sell-off was significant enough to cause the SPDR Gold Shares exchange-traded fund — the largest ETF backed by physical gold — to fall 12% from its May high to its October low.
Worry that sticky inflation would lead to further increases in Treasury yields and the U.S. dollar led many to conclude that gold's retreat would continue. However, gold prices found their footing in October and have since rallied, surprising investors.
One analyst who wasn't caught off guard by the move up in gold was Real Money Pro's Bruce Kamich. He told investors on Oct. 10 that "The 8-year cycle in gold is making a bottom." Since then, gold is up nearly 12%.
Given Kamich's prescient prediction, gold bugs may want to pay attention to what he thinks could happen to gold prices next.
TheStreet/Bruce Kamich
Lower inflation pauses Fed's rate hikes
The Federal Reserve's mandate is to craft monetary policy that keeps inflation and unemployment low.
In 2022, easy money policies put in place to reduce unemployment during Covid-lockdowns and a global supply chain disruption caused inflation to soar, forcing the Fed to increase the Fed Funds Rate.
Related: Long-time fund manager makes a bold crude oil prediction for 2024
The central banks hawkish policy was a boon to Treasury yields and the U.S. dollar, but it was bad news for gold prices. Because gold is priced in dollars, U.S. dollar strength put downward pressure on the metal, despite its status as an inflation hedge.
The Fed's interest rates have been effective. The Consumer Price Index (CPI), a common inflation measure, has fallen from a peak above 9% in June 2022 to about 3% in November. As a result, pressure on the Fed to continue raising rates has eased, causing Treasury yields and the dollar to retreat, and gold to rise.
The jury is still out on if or when inflation will reach the Fed's 2% inflation target. Nevertheless, progress so far suggests the Fed's next move is to cut rates, not increase them. The Fed's Summary of Economic Projections in December suggests we could see three rate reductions in 2024.
Gold's price chart reveals a new target
Bruce Kamich has been analyzing commodities using technical analysis for over 50 years, so he's seen his fair share of bull and bear markets.
His experience evaluating price and volume and technical analysis indicators, including momentum, was behind his accurate forecast that gold would bottom in October.
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Now that gold prices have risen substantially, Kamich recently reevaluated the SPDR Gold ETF's charts for new insight. He came away impressed.
"Gold prices are close to an upside breakout that sticks," said Kamich. "A monthly close above $190 should precipitate further gains."
The SPDR Gold Shares ETF (GLD) -) closed at $193 on Dec. 27, opening the door to much higher prices. Using a weekly point-and-figure chart, Kamich calculated a price target "in the $300 area."
Economic uncertainty could support gold stocks in 2024
The Federal Reserve estimates that gross domestic product, or GDP, will grow by 1.4% in 2024, down from 2.6% this year. It also expects that unemployment, while remaining low, will climb to 4.1% from 3.8% in 2023.
Slowing economic activity and rising unemployment could make next year challenging, especially given Presidential Election year uncertainty.
If so, gold may not only benefit from a falling dollar, but also from a flight to safety. For instance, the SPDR Gold Shares ETF more than doubled between 2008 and 2011 when global economies were still reeling from the Great Recession. Gold prices also performed well when the Federal Reserve began cutting rates in 2019 and the global economy got upended in 2020 by Covid.
If gold has made its "8-year" low, then rate cuts and investor unease could be good news for gold stocks too.
Kamich recently picked a gold mining stock, Hecla Mining, as one of his favorite stocks to own in 2024.
"The weekly [on-balance volume] OBV line has improved in the past three months. The [moving average convergence divergence] MACD oscillator has crossed to the upside for a cover shorts buy signal and is not far below the zero line," says Kamich.
On-balance volume is essentially up minus down day volume while MACD is a momentum indicator.
How high could Hecla Mining's shares climb? Kamich says the daily P&F chart forecasts a $7 per share target, 40% higher than its Dec. 27 closing price.
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