Go for the Gold! (But Do It Quickly)

by Serge Berger | April 2, 2013 9:21 am

On Feb. 21, I said that risk/reward at the time was unfavorable for those looking to chase gold lower[1]. Since then, gold has indeed refused to go lower … and even bounced a little higher.

Some five weeks later, I am looking at gold once again, this time in the greater context as it relates to near-term movements in the equity markets.

To be precise, I am considering buying the SPDR Gold Shares (NYSE:GLD[2]) for a few percent if and when equity prices decide to take a little breather and correct in price to the downside for more than a few ticks. (Silver, on the other hand, I find extremely difficult to like for upside at this juncture — at least not until more bullish price action shines through.)

For a little perspective, let us look at a longer-term chart of gold via the SPDR Gold Shares:

[3]

The massive run-up in gold peaked with a vertical leap in September 2011 and formed a series of lower highs ever since. What continues to be missing is a lower low, which would confirm a change of trend. Important to understand for these longer trends is that tops are not points, but rather processes that first lead to sideways movements before a more meaningful downtrend can kick in. A lower low would be confirmed on a solid break below $148 on GLD. Thus, I remain bearish on gold over the medium- and longer-term.

To those attracted to perma-bullishness on the flavor/asset of the month, let this longer-term chart of gold also be a reminder that gravity ultimately wins out. Those who didn’t learn from gold surely must have gotten a hint from the latest example: the big selloff in Apple (NASDAQ:AAPL[4]) since last autumn.

Near-term, however, I continue to see upside for gold. While longer-term correlations between stocks and gold are floppy, the short-term inverse correlations during price corrections in stocks is remarkably reliant. Hence my interest in picking up some gold via the SPDR Gold Shares should a correction in stocks be confirmed by price action.

On the closer-up chart of GLD, the level I am watching is $156.75. A daily close above there would move this ETF past its February highs and likely also break the downtrend in place since last October.

[5]

Given near-term inverse correlations between stocks and gold, a break above said level is likely to occur on the back of initial price weakness in equities.

Serge Berger is the head trader and investment strategist for The Steady Trader[6]. Sign up for his free weekly newsletter here[7].

Source URL: https://investorplace.com/2013/04/go-for-the-gold-but-do-it-quickly/

---