The Fed might be a big arrow in the heart of gold, but I still like it: Strategist

Gold prices have surged 5 percent this month, but one trader believes the rally is short-lived as the commodity is too tethered to the Fed.

The yellow metal surged as May's weak employment number led many to speculate that the Federal Reserve was likely going to shelve a June rate hike. But Crossing Wall Street blog editor Eddy Elfenbein believes that now gold's future has become too tied with Fed action for a reliable move up.

"You had that big move after Friday's jobs report, but that's because the expected rate increase was taken off the table," he said on CNBC's "Trading Nation" on Wednesday. "To keep the rally going, you need to keep having that, and I think there is a view that the Fed is going to raise rates at some point within the cycle." Fed Chair Janet Yellen spoke earlier this week, urging investors not to worry too much about the poor jobs number and indicating that the market could still see two rate hikes this year.

"Higher real rates are a death for gold. So I think in the long term, I just don't see gold having a significant rally going forward," Elfenbein added.

But Boris Schlossberg, managing director of FX strategy at BK Asset Management, believes that gold is going to remain "strong directionally" and that while the Fed story is the "big arrow in the heart of gold," it's not the only thing to take into account.

"Eventually, I think it's going to have a temporary setback on gold, but I think the key question going forward is if equities begin to wobble, gold is going to get a huge amount of benefit from risk aversion," he said. "So one way or the other, I'm still mildly bullish on gold, but I'd really like to see that $1,300 breakout to confirm the trend is up."

Gold hit a three-week high on Wednesday, closing at around $1,262. It opened Thursday morning at around the same level.


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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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