Are Gold ETFs Currently A Buy?

The price of gold fell to the lowest level in months this morning before a sudden reversal higher as stocks began to move lower.

The SPDR Gold ETF GLD has fallen seven percent in the last six weeks and the gold mining stocks have suffered an even bigger loss.

The question arising Thursday is whether the early morning reversal is a sign of things to come for gold or is it simply overdue buying after four consecutive down sessions?

The chart of GLD shows a long-term downtrend that began in 2011 and has shaved off one-third of the value of the ETF.

That being said, in 2014 the ETF has been a winner even after the recent sell-off. The ETF is up seven percent for the year.

Investors will be split on the answer with the gold bugs looking at every pullback as a buying opportunity. The problem with that strategy is that they would have been buying for the last three years as the price continued to decline.

See also: Gold or DJIA - Which Would You Rather?

The more skeptical investors will look at the chart and see a long-term downtrend and a choppy pattern over the last few months after a rally to begin the year.

The gold bears will also question the merits behind owning gold during a bull market for the equity markets. With the Dow and S&P 500 trading near all-time highs, what is the reason to hold gold in a portfolio considering its performance the last few years.

The metal has not been a “safety” net as it has in the past. Consider the several geopolitical issues and U.S. government debacles over the last few years and gold was not an asset class the investors ran to in times of uncertainty.

Even though it appears gold has lost its luster, the odds are good that GLD will rally for a couple days based on the charts. The ETF is holding support at $123.11, from its prior pullback and it is oversold.

That being said, the odds of a sustainable rally are not high unless the U.S. equity market suddenly begins to crash, which does not look likely at this time.