Why gold can still rally in the face of the Fed

As the economy shows signs of improvement and as the U.S. dollar gets stronger, should now be the time to get out of gold?

Since Thursday's stronger-than-expected jobs report, the dollar has rallied and gold has fallen nearly one percent. But some traders don't think it's time to hit the sell button just yet.

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"I don't think gold is a sell," said Richard Ross, global technical strategist at Auerbach Grayson. "Neither is it a high-conviction buy though, by virtue of this relatively range-bound sideways chart that we've had for over the last year now."

Gold has traded in a range roughly between $1,180 and $1,400 since the latter half of 2013. "This is a very range-bound, choppy, sideways chart," said Ross, a "Talking Numbers" contributor.

Ross' long-term chart of gold shows bullion as coming up against resistance from a downtrend begun in 2012, when the metal traded at $1,798 per ounce. It subsequently broke down below its 200-week moving average in early 2013. "We have a well-defined trend in place," Ross said. "Absent a break above or below that trading range, it's very difficult to be a high-conviction buyer or seller of gold."

Dan Greenhaus, chief global strategist at BTIG, is more optimistic on gold. "After a long move higher, gold seems to have put a bottom here," he said. "To me, I think that puts the bias on the next move being to the upside."

While the U.S. Federal Reserve bank has been cutting back its monetary stimulus, other central banks – particularly the Bank of Japan and the European Central Bank – are increasing theirs, Greenhaus noted.

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"That said, the important fundamental observation with respect to gold right now is that it's not purely about central banks," said Greenhaus. "Even when the Federal Rreserve was tightening… gold did exceptionally well and continued doing well, outperforming broad equities."

Greenhaus believes larger economic issues beyond nominal interest rates are driving gold. "You have things to worry about like relative inflation rates," he said. "While inflation is going higher in the United States, it appears to be stabilizing at a very low level in Europe. And over in Japan, after an initial spurt higher, the bias for inflation there is lower. So there's a lot of metrics that go into the gold observation, beyond simply, 'Well, the Fed is getting tighter.'"

To see the full discussion on gold, with Ross on the technicals and Greenhaus on the fundamentals, watch the above video.

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