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Breakout? Fed on hold, good for gold

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Gold is dancing around its 200-day moving average, giving hope to those who are looking for a breakout from what's been a lackluster performance this year.

Analysts say investors are dipping back into the gold ETFs, like SPDR Gold Trust, and that is helping push the metal higher. Gold futures for June were slightly lower, hovering just above its $1220 an ounce, 200-day moving average Friday.

"This is definitely short-term oriented," said Howard Wen, precious metals analyst at HSBC. "The recent rally hasn't been in conjunction with physical demand. We're kind of slow on that front. That leaves us to believe that this is more a rally in the paper market - a macro related rally. In order for this to be sustained you need physical buyers in the market, but we're approaching the summer months, a weak period for physical demand."

Yet he sees a breakout from its recent range to $1230/1235 an ounce. Strategists are watching to see if gold futures can make it to the $1230 area, where there is some support for another push higher. But how high it goes remains to be seen, with strategists willing to target short term moves only up to as high as $1345 because the factors that are driving it are more about macro issues than demand.

"I'm hoping we're going to end up something close to $1300 by year end," said RBC analyst George Gero. "Near-term, I think it's going to be in this kind of trading range it's in now. It depends a lot on the dollar, crude and the stock market."

Gold has been a heart-breaker for bulls this year. It has pushed higher and fallen back a number of times, with futures gaining just 3 percent year-to-date. Gold futures are up 2.8 percent for the week so far, and it has made an another drive above the important $1200 level, a line it continued to hold Friday.

A number of strategists have year-end targets just around $1300.

Bart Melek, head of commodity strategy at TD Securities, said the recent gold move may be much more about the Fed than the dollar. He said as expectations for a first interest rate hike have been pushed out further and further, gold has gained some shine.

Read MoreBad news is serving as good news for gold

"Certainly, the fed funds futures are pricing out late December," he said. "...We've done nothing effectively since January. We've not reacted to negative economic surprises. We should have, and hey there's some catching up to do."

The high for gold futures this year was $1308.50 an ounce on Jan. 22, and the low was $1141.60 on March 7. Gold closed above $1220 Thursday for the first time since Feb. 5.

Gold got a real boost this week when retail sales for April were surprisingly weak, and that in turn caused more traders to push back their views on a Fed hike from September to December or even January. December was already seen as more likely a time frame.

Friday's seven-month low in consumer sentiment, at 88.6, added a lift to the metal, which was still lower on the day.

Read MoreConsumer sentiment posts big miss in May

"I think saying we've seen the low of the year is brave to say, but I do think we're going to start going higher from here. That's going to change if the economy starts to look better," said Melek. He said there could be a scenario where the dollar picks up steam and gold could rise. "If it's because all, looks okay in the U.S. A., then no." But if rate hikes continue to look to be on hold, then gold could move ahead even if the dollar is stronger.

The World Gold Council reported Thursday that global demand for gold fell 1 percent in the first quarter of the year with soft buying in key markets like China. Jewelry purchases were down 3 percent from year ago levels.

ETF purchases were sharply higher in the first quarter, up 26 percent, and the first positive net purchases since the fourth quarter, 2012. Another investor barometer - bar and coin demand - was 10 percent weaker year-on-year, according to the gold council.

Gero said he expects to see demand pick up in the second quarter. "You're going to start to see an increase from people who live in debased currency countries," he said, adding low prices should prompt jewelry buying.

Jeff Saut, chief investment strategist at Raymond James, reiterated his favorable view Friday on the Market Vectors Junior Gold Miners ETF .

Saut wrote: "...the pattern I am seeing now...has me even more excited for the group and leads me to think there might be even more upside in the months to come." He noted the ETF broke a long term trend line that had been in place since late 2010, and after a pull back several weeks ago, it has rallied to make what seems to be a bottoming with higher lows and highs.

"It may just be the best long-term pattern I have seen since last summer's breakout in the Shanghai Index, a breakout that has since translated into more than a 100% gain in Shanghai's stock market. Of course, I am not saying the same thing will happen here with the miners, but I do believe that long-term breakouts like this should be respected, and if you are comfortable with holding this highly volatile fund, I do believe the risk/reward set-up looks favorable here," he wrote.