Three reasons to consider backing gold

In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, explains why they’re backing gold.

Last Wednesday, Mish [Schneider] went live on Fox Business’Making Money with Charles Payne and gave out a very bold pick.

Or, at least bold in the eyes of the general populous, as most of the media’s recent coverage has focused on big tech and the cryptocurrency space.

Having said that, on Thursday, gold gapped up and finished this week with a second close above its 50-day moving average (DMA) at $164.12.

So, why did we pick gold before its big move up when most of the media’s sentiment was lacklustre?

Here are three main reasons:

The first is rising interest rates. Governments and central banks around the world have borrowed huge amounts of money to revive the economy.

Without any clear plan to dig the US out of debt, there is rising worry that the US dollar could be under enormous pressure. This in turn would boost gold as its limited supply in the face of inflation can be very appealing.

The second is a hedge against the fear of the unknown. Currently, there is rising tension in the Middle East between Iran and Israel. If the situation were to escalate, it is unclear how the current administration would react.

This is a big unknown for investors, who can use gold as a safety play or hedge while they wait for more clarity.

The third is technical analysis. By taking look at the daily chart above, you can see a formation of a double bottom pattern created from 8 March and 30 March.

Each bottom was followed by a large move higher, either by a gap or a large candle range.

Furthermore, the increased volume on 30 March showed that a large number of buyers came in to support the move back up.

For these reasons, we should keep a watch on gold to continue upwards.

However, if gold were to turn around and head lower, the main support would be from the double bottom price level at $157.

Ideally, it should hold over the 50-DMA area at $164.12.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.