Granted, gold has been hated for more than three years now, but some investors can’t help but feel enticed by the discounted prices. However, a closer look at what’s really driving the metal may reaffirm the market’s opinion on the matter; that is, the trend remains down for gold prices.

Inflationary Expectations

This is perhaps the single biggest driver of gold prices – especially so today. The last labor market report indicated a pickup in wage growth, which often is a leading sign of inflation creeping up. As one would expect, this raised Fed rate hike fears, which ultimately pulled the U.S. dollar higher and gold lower. The stage now is set for the Fed to start tightening, which would likely work against any near-term reversal in gold prices.

Safe-Haven Demand

In the right environment, gold’s safe-haven appeal may supersede inflationary expectations when it comes to key price drivers. One would think that after such a steep sell-off and gold prices now trading around major lows, the terrorist attacks in Paris would have pushed investors’ fear buttons more. However, against the bulls’ expectations, gold prices didn’t do much after the tragedy.

See ETF Surprises After Paris Attacks

Foreign Central Bank Policy

It’s not just moves in the U.S. dollar that impact gold prices; foreign central bank policy also should be carefully considered when analyzing the fundamental landscape. Currently, the odds are stacked against gold; that is to say, major central banks, including the ECB, BoJ and PBOC, still are very entrenched in “easing mode,” and that is because inflationary expectations overseas remain weak. In turn, this decreases gold’s potential utility as an inflation-fighting investment.

Consumer Demand

Consumer demand is not really a key price driver and this factor isn’t really in focus right now. Perhaps the one thing to consider is that slowing economic growth in China and India is a clear headwind; likewise, any signs of this changing could be positive for the precious yellow metal.

Gold still is facing more headwinds than tailwinds as not much has changed for the precious metal over the last year from a fundamental perspective. This, of course, suggests that any future price appreciation may be short-lived as the underlying factors driving the price of gold haven’t aligned for the bulls just yet.

Let’s move on to what the charts are saying.

Consider the weekly chart for the SPDR Gold Trust (GLD A-) since inception below:

Takeaways:

• Since peaking in the second half of 2011, GLD has remained in a downtrend (blue channel) as evidenced by lower-highs and lower-lows.
• On an encouraging note, this ETF is nearing a significant price level around the $100 mark (red line), formerly resistance, which now might serve as major support.

Consider the weekly chart for the Gold Miners ETF (GDX B+) since inception below:

Takeaways:

• Gold miners peaked in 2011 alongside gold, and have since remained in a downtrend (blue channel) as well; although it’s worth mentioning that GDX had been topping out for a lot longer than GLD.
• Recently, GDX has been able to trade along a support level (red line), with big volume, which certainly is encouraging; let’s not forget this ETF is trading in uncharted “low territory.”

Investors have a number of choices when it comes to profiting from a move in gold prices:

• See All Gold ETFs
• See All Gold Miners ETFs
• See All Gold Explorers ETFs

Also be sure to read the 50 Ways to Invest in Gold.

If you are tempted to trade the potential reversal setup in gold and gold miners ETFs, do so with caution; as the technical analysis above suggests, this precious metal remains in a long-term downtrend with additional fundamental headwinds. For nimble traders, establishing a long position in gold-related ETFs at current levels may provide an ample risk-reward ratio should the Fed deliver a “no rate hike” surprise at its next meeting in December.

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