Why gold is now 'walking on a tight rope'

  • Gold fell in Wednesday trading amid the Federal Reserve's decision to keep its federal funds target rate unchanged.
  • Some strategists see long-term headwinds for the metal.
  • Gold has advanced 8 percent year to date.

Gold slipped in Wednesday trading amid the Federal Reserve's decision to keep its federal funds target rate unchanged. Some strategists see near-term opportunity for the yellow metal, though longer-term fundamental and technical headwinds loom.

The jobs report on Friday along with mounting geopolitical issues could be near-term catalysts for the asset often seen as a safe haven, RJO Futures senior market strategist Phillip Streible told CNBC in an email Wednesday.

"If we see a big miss in the jobs report, followed by a more hostile situation in North Korea and further unwinding of the EU, then gold could see a complete turnaround and threaten $1,300," Streible wrote. "If things subside and stabilize, economic data remains firm, then $1,200 is the likely target. Either way, gold is walking on a tight rope." Gold on Wednesday hovered around $1,250 per troy ounce.

In the short term, several fundamental factors are working against the price of gold, said Gina Sanchez, CEO of Chantico Global.

"I think the long-term trends are against it, but there are some short-term places for gold to still continue to be in a portfolio right now," Sanchez said Tuesday on CNBC's "Power Lunch."

"We have an economy that is recovering, we're going into an interest rate-hiking cycle, volatility has been very low, and the dollar has been strengthening," Sanchez said. "So all of those things are stacking up" and pushing the yellow metal's price down instead of boosting it.

The way Sanchez sees it, investors are expecting more positive economic data than negative, which conventional wisdom would suggest is a negative for gold. But at the same time, investors may be expecting too much from the economy and its growth — which could propel gold if economic data disappoints. Indeed, last week's first-quarter GDP report disappointed expectations, reflecting the slowest quarter-over-quarter growth in three years. Increasing geopolitical tensions, too, would boost gold's allure for investors.

And on a technical level, gold did something on Wednesday that could indicate weakness for the metal, which has risen more than 8 percent year to date. Gold moved into a so-called "golden cross" — when its 50-day moving average crosses above its 200-day moving average.

"Although the last 3 "crosses" (two "death crosses" & one "golden cross") were succeeded by follow-through moves, the "golden crosses" of 2014 and 2012 [were] MAJOR head-fakes ... and were followed by significant declines," Miller Tabak equity strategist Matt Maley wrote in a note to clients Wednesday.

"If you're buying it for insurance, that's fine, but if you're buying it for a trade, I'm not interested," Evercore ISI technical analyst Rich Ross said Tuesday on "Power Lunch."

Though gold has risen year to date as the "reflationary narrative has been called into question," the failure into what Ross identifies as "trend line resistance" calls into question the gold trade itself.

"I see a break below $1,250 leading us to lower gold prices," he said.

Gold fell as low as $1,248.20 on Wednesday morning.


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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.

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