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Why the Fed might not be able to put a stop to gold's run

Gold has enjoyed a great start to 2016, but now finds itself in retreat, with the yellow metal hitting the lowest level since April in intraday trading Monday. But while the greater perceived potential for a Federal Reserve rate hike this summer appears to be sending the commodity lower, some say such speculation is not a good reason to sell gold.

"If you look at gold on a very long-term basis, there is literally very little correlation between interest rates and gold," Boris Schlossberg said Monday on CNBC's "Power Lunch." "Basically, gold rose when interest rates rose in the '70s, gold rose when interest rates declined in the '90s," so the likely effect of Fed rate rises isn't straightforward.

Schlossberg, managing director of FX strategy at BK Asset Management, says the biggest threat to gold is actually a strong stock market. Gold and equities tend to have an inverse correlation with one another, which means a rate rise could be great for gold.

"The Fed rate hike may actually trigger a sell-off in equities, that will probably be very positive for gold," Schlossberg said Monday. "And as long as gold holds the $1,200 level, I still think it's a pretty good long."

Read MoreGold touches 3-1/2 week low on Fed rate expectations

But other experts, such as Oppenheimer technical analyst Ari Wald, are looking at another classic correlation to call gold's next move. While the metal's correlation to rates might be low, it has a notable opposing relationship with the dollar, and higher rates are expected to send the greenback higher as holding dollars will become more attractive as compared to holding other currencies. Indeed, gold's recent slide can probably be pinned rather squarely on the dollar rise.

Still, Wald still likes gold from a longer-term perspective, given that the metal recently "broke a multiyear downtrend."


"Of course, a characteristic of a base is range bound trading," he added. "I think the important levels to watch here are $1,200 on the downside, $1,300 on the upside."

With the dollar on the rise, gold's short-term outlook could see it on a downtrend. However, Wald believes that investors just need to wait out gold's near term for a stable run in the long term.

"Longer term, there are signs of trend improvement, I think this year's strength in the first quarter was very notable," he said. "We broke a multiyear downtrend in gold, we think the long-term trend is now basing."

On Monday, gold sat at its lowest level since April when a huge rally brought the metal back to highs unseen since last year.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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