Gold prices took investors on a roller-coaster ride in 2023, popping and dropping throughout the year's first nine months. Then, gold took off, making a bee-line from October lows to all-time highs.
The rally since last fall caught many investors by surprise, given concern that a stronger dollar because of sticky inflation would crimp demand for the precious metal, causing the SPDR Gold Shares exchange-traded fund (GLD) — the largest ETF backed by physical gold — to stall.
One analyst who wasn't caught flat-footed was TheStreet Pro's Bruce Kamich. He told investors on Oct. 10 that "The 8-year cycle in gold is making a bottom."
His profit-friendly prediction suggests gold bugs should pay attention to what he thinks could happen to gold prices next.
TheStreet/Bruce Kamich
The Fed presses the pause button on interest rates
The Federal Reserve aims to craft monetary policy that keeps inflation and unemployment low.
Inflation surged in 2022 because of easy money policies to reduce unemployment during COVID lockdowns. A global supply chain disruption when the Ever Given was grounded in the Suez Canal didn't help, causing prices to skyrocket.
Related: Goldman Sachs unveils commodity price targets ahead of rate cuts
In response, global central banks enacted the most hawkish policy since Volcker declared war on inflation in the 1980s. The Fed Funds Rate was lifted from essentially zero to 5.25%, creating a big headwind for gold, which is priced in dollars.
The increase in the rate successfully curbed inflation, driving the Consumer Price Index (CPI), a common inflation measure, from a peak above 9% in June 2022 to about 3.2% in February 2024.
As a result, the Fed is no longer under as much pressure to increase rates, leading the U.S. Dollar to retreat, and gold to rise.
It's unclear whether or when inflation will achieve the Fed's 2% inflation target. Nevertheless, the progress made so far has led to the Fed shifting to the sidelines, and, importantly, the Fed's Summary of Economic Projections in December suggests rates could be cut three times by the end of 2024.
Gold's price chart reveals a new target
Bruce Kamich has been analyzing commodities like gold using technical analysis for over 50 years, so he's seen more than his share of bull and bear markets.
His experience evaluating price, volume, and technical analysis indicators, including momentum, led to his accurate forecast that gold would bottom in October.
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Now that gold prices have risen substantially to all-time highs, Kamich recently reevaluated the SPDR Gold ETF's charts. He remains bullish.
"The daily trading volume histogram shows an increase in volume in recent days. The daily On-Balance-Volume (OBV) line shows strength since the middle of February and is poised to make a new high for the move up. The trend-following Moving Average Convergence Divergence (MACD) oscillator is in a bullish alignment above the zero line," wrote Kamich in March.
On-balance volume is essentially up minus down-day volume. MACD is a momentum indicator.
The SPDR Gold Shares ETF closed at $203 on March 27, and higher prices could be coming. Using a weekly point-and-figure chart, Kamich calculated a price target of $271 for the ETF.
It could have even more room to run, though.
"I used weekly price data using percentage changes and a five-box reversal filter," said Kamich. "This suggests a price target in the $299 area. Let's call it $300. Round numbers can be magnets at times."
The U.S. economy could support gold stocks in 2024
The Federal Reserve estimates that gross domestic product, or GDP, will grow by 2.1% in 2024, down from 2.5% in 2023. It is also expected that unemployment, while remaining low, will climb to 4% from 3.6% in 2023.
A slowing economy and rising unemployment could make next year challenging, especially given the uncertainty of the presidential election year.
If so, gold may benefit from a lower dollar and a flight to safety. For perspective, the SPDR Gold Shares ETF more than doubled between 2008 and 2011 when global economies were entrenched and emerging from the Great Recession. Gold prices also performed nicely when the Federal Reserve started cutting rates in 2019 and the global economy was upended by Covid in 2020.
If gold has made its "8-year" low, as Kamich postulated last October, then interest rate cuts and investor uncertainty could help gold stocks rally.
Kamich has picked gold mining stocks as top ideas in 2024. Based on point-and-figure charts, he thinks Harmony Gold (HMY) could rally to $10. He also set a target of $12 for Osisko Gold Royalties (OR) .
Related: Veteran fund manager picks favorite stocks for 2024
