Gold Price Forecast: Is the Bottom Finally In?

The odds that the gold price has bottomed have increased significantly over the past month.

When gold first dropped below key technical support at the 2015 low of $1,072 in late November, I initially turned bearish. After all, this breach of support brought gold to its lowest levels since the start of 2010.

But since that low, gold has printed a double bottom during December, which is usually evidence of a bullish trend reversal. And indeed, this technical forecast is proving to be accurate as the gold price has proceeded to record three consecutive higher lows on the charts. The gold price also made a higher high during the first week of 2016. This breakout ran into resistance around the 100-day moving average of $1,120 and turned lower. However, the price found support above the key technical resistance at $1,072 and marked yet another higher low.

As of Monday's close, the gold price was once again trying to push above the 100-day moving average. In Tuesday early Asian trading, gold is now up $10 to $1,118, attempting to make a higher high on the charts and new high for 2016. Adding to the bullish technical case, the RSI momentum indicator is pointed higher with plenty of room to run before reaching overbought territory.

Recent price action has improved the odds that a price floor for gold has been established around $1,050. To increase our confidence, the gold price needs to now climb above the 200-day moving average at $1,134, then resistance around $1,160 and finally strong resistance at $1,200. The GSB portfolio currently has a large cash position which we will use to increase exposure to mining stocks at each of these critical price points should gold continue advancing.

Gold's fundamentals have also improved recently. The yellow metal is once again acting as a safe-haven asset and climbing while the equity markets drop sharply. This weakness in stocks has long been foreshadowed by weak leading economic data. This weakness in equities decreases the odds that the FED will continue raising rates. To the contrary, I think the central banks may have to reverse course, lower rates and introduce some new form of stimulus to keep things from spiraling out of control in 2016.

Bear markets turn into bull markets and the current bear market in precious metals may have run its course. Investors are desperately searching for value in a crowd of overvalued assets and safety from market conditions that are no longer rewarding the 'buy the dip' strategy.

As investors panic and pull their money out of stocks, a certain portion of those funds will find their way into precious metals. It only takes a small amount of wealth to enter this relatively small market in order to push the gold price significantly higher. Of course we cannot be certain that prices have bottomed or that lift-off is around the corner, but the prospects for gold bulls have certainly improved.