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Putting Gold’s Mettle to the Test

Posted December 27, 2023

Zach Scheidt

By Zach Scheidt

Putting Gold’s Mettle to the Test

Investors are eyeing gold very carefully right now. And it’s not hard to see why.

The yellow metal closed the month above $2,000 an ounce, an important resistance level, for the first time ever in November.

As we discussed previously, this breakthrough finally clears the way for gold to soar to $3,000 an ounce next year.

But as often happens after a sharp run-up, the precious metal pulled back in early December as traders took profits.

The key question was whether gold would find support and stabilize, or if it would plunge back down before the rally could kick off in earnest.

This was a pivotal moment and should tell us more about what the future has in store for the yellow metal.

So today, let’s look at how gold performed during this important test.

Good News! The Gold Rally Is Still on Track

A retreat like gold’s in early December is perfectly normal after a breakthrough. Remember, some investors waited years for that breakout and likely sold some holdings to lock in gains.

Had gold plunged right through this support level, that would indicate the breakout was a false move not yet supported by actual renewed demand.

But I’m happy to say that gold is still in a positive trend and found support just under $2,000 an ounce, which is a good sign that this is a new floor on gold prices.

This successful retest of the breakout level confirms that there is indeed fresh buying interest emerging that should drive prices higher next year toward my $3,000 target.

It indicates the sellers who held gold under $2,000 for years are likely done dumping supply onto the market.

It also means new buyers have shown a willingness to step up and establish new positions after the breakthrough.

Both of these developments clear the way for gold’s next leg higher towards $3,000, giving me confidence that our gold price target is intact.

Beyond these encouraging technical signals, the fundamental macro backdrop remains highly constructive for gold.

How to Participate in the Gold Rally

There’s no shortage of ways to capitalize as gold moves higher next year. The most obvious place to start is by owning physical gold.

It’s always a good idea to keep at least a small portion of your wealth in actual gold coins or bars, stored securely in a safe, bank vault, or other safe location.

Physical gold is the ultimate long-term way to defend your purchasing power.

No matter how much fiat money central banks print, gold will retain tangible real-world value. So it offers inflation protection that volatile paper assets can’t provide.

The downside is that gold bars buried in your backyard don’t earn interest or pay dividends. To grow wealth, you need some exposure to gold through financial markets.

In addition to buying physical gold, you can buy SPDR Gold Shares (GLD), an ETF that tracks spot gold prices.

So buying GLD is an easy way to participate in a gold breakout without messing with coins and bars. You also get the flexibility to sell anytime the market is open.

[Full disclosure: I have a personal bullish position in GLD as part of my Income Alliance model portfolio.]

There are no dividends with GLD since it holds gold. But you capture the full upside if my price predictions for gold come true.

And if you’re looking to take things a step further, you can target gold mining stocks for additional profit leverage.

I prefer owning a basket of miners through ETFs like VanEck Gold Miners ETF (GDX) or VanEck Junior Gold Miners ETF (GDXJ) instead of selecting individual companies.

These funds hold dozens of leading gold producers, explorers, and junior miners across different countries.

As gold marches higher, miners generate wider profit margins when they sell their haul at inflated prices.

All things considered, it’s shaping up to be a strong year for gold.

A weakening dollar and interest rate cuts should provide a strong tailwind for the yellow metal over the next 12 months — and possibly much longer.

So position your portfolio accordingly for a huge upside as gold makes its next charge toward $3,000 an ounce!

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