Gold has been used as a form of money since ancient times and has traditionally been viewed as a safe haven in times of uncertainty. It has also been regarded as a store of value during periods of inflationary pressures.
In recent years gold prices have not moved much based on these traditional beliefs. It has been driven primarily by interest rates and currencies. We have a good example of this relationship now. Bonds are weak and interest rates are rising, which can be seen in the chart of the iShares 20+ Year Treasury Bond ETF (TLT) . With rates rising in the United States that makes the dollar more attractive. See the chart of PowerShares DB U.S. Dollar Index Bullish Fund (UUP) .
When the dollar is strong the value of gold tends to fall but it is much more complicated than that because other currencies such as the yen and euro will also have an impact on what gold is doing. The bottom line is that you can't just jump in gold based on the old beliefs that it's a safe haven or a good inflationary play.
This week, well-known bond maven, Jeffrey Gundlach of DoubleLine Capital, commented (among other things) about gold (SPDR Gold Shares (GLD) ) breaking a long downtrend . I pulled up the chart to see what he is talking about and there is no question that he is correct about the pattern.
Although gold has broken its downtrend line, it is still bumping up against resistance at the $130 level of GLD. GLD is now at the bottom of the shorter-term trading range going back to the first of the year.
Longer term, the potential looks good but I would not be adding to a position until that $130 area is taken out.
It is going to take a shift in the dollar for the sort of breakout move that Gundlach is anticipating to occur. Right now, there is potential in the GLD chart but not enough positive price action to confirm the downtrend is broken and momentum is building.