The Motley Fool

Gold Investors: Is the Yellow Metal About to Break to the Upside?

Gold continues to trend higher in the wake of the U.S. rate hike, and a series of additional potential catalysts are fast approaching.

Let’s take a look at the current situation to see if gold might be setting up for a breakout.

Fed shock

Gold is supposed to fall when the U.S. Federal Reserve raises its target interest rate, right?

Well, that’s the normal line of thinking, except when the metal has already sold off ahead of the expected hike, and the Fed comes out less hawkish than anticipated.

That’s what happened last week, and the relief rally that ensued is holding up quite well.

The Fed said it is sticking to the plan of raising rates three times in 2017. This is still a headwind for gold, but it isn’t as strong as it would have been had the Fed said it is considering four moves instead of three, which is what the market was worried might happen.

Now that the Fed debate is more or less done, the market is looking to other risks.


Brexit negotiations are set to officially begin March 29. Up to this point, there was some lingering hope that a new referendum might be called to save the market from all this uncertainty, but that was wishful thinking.

Now, markets hope the U.K. and Europe can negotiate an amicable separation. That might happen, but some pundits say the process, which could take two years, is likely to get quite ugly.

France, meanwhile, is about a month away from choosing a new president. One of the top contenders, Marine Le Pen, would like to drop the euro and hold a referendum on France’s E.U. membership.

If she wins, gold could see some strong safe-haven demand.

Further south, Italy is still struggling with a banking crisis that could threaten the broader European financial system.


President Trump’s aggressiveness towards China continues to make markets nervous. At the same time, the U.S. appears headed for a clash with North Korea, and the FBI just announced it is officially investigating Russian interference in the U.S. election, including any potential “links” between Moscow and Trump campaign officials.

So, the next few weeks and months promise to be exciting ones.

Should you buy gold stocks?

As we saw with the Brexit vote last year, the gold market could simply shrug off any negative news and move lower, so you have to be a long-term gold fan to buy the market today.

If you are in that camp, Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) is probably a good name to consider.

The company is reducing debt, cutting costs, and generating solid free cash flow. Management even raised the dividend when the Q4 2016 earnings came out.

As the world’s largest producer with one of the lowest cost structures, Barrick is in a strong position to benefit in a rising gold environment.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Andrew Walker owns shares of Barrick Gold.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.