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Is The Gold Rally Signaling Inflation?

|Includes: VanEck Vectors Gold Miners ETF (GDX)

The price of gold often tells us many things. In 1999, when gold began a breakout rally into its 2011 top it told us that the U.S. Dollar Index was about to crater lower. Then in September 2011, gold topped out signaling deflation in most every commodity. As you can see, the pattern here is that gold will generally rally when the U.S. Dollar weakens and decline when the U.S. Dollar strengthens. Recently, gold has been surging higher in 2016 while the U.S. Dollar has held up rather well.

Gold is the best performing asset in 2016. The precious metal is up about 20 percent this year alone. Could gold be signaling inflation is coming in a major way? Perhaps, the precious metal increase is just protection against negative interest rates that are already taking form in Europe and Japan. Either way, gold is soaring higher despite the commercial money being heavily short the precious metal. Traders should note that gold is very overbought in the near term, but it could be trying to send us a message of things to come.

Traders that want to track the price action in gold can use the SPDR Gold Trust (ETF)(NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU), and the Market Vectors Gold Miners ETF (NYSEARCA:GDX).

Nick Santiago