GLD ETF: Bet on Gravity Holding Down Gold

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Gold bugs rejoiced recently as the coveted yellow metal soared on the heels of the stock market crash.

Well… that’s what should have happened, anyway. Instead, poor old gold couldn’t even catch a decent bid during a time of epic turmoil. Wall Street’s go-to gold ETF, the SPDR Gold Shares (GLD) — is trading for the same price it was at prior to the recent market swoon.

No doubt, GLD will rise again … but it’s got to be a bit depressing for precious metal owners to see such an underwhelming response to what could have been a golden opportunity for GLD to gain back some lost ground.

On the technical front, gold prices remain firmly locked in a bear market. The downtrend in gold’s weekly chart continues to stymie each and every rally attempt. It’s difficult to reverse such a well-entrenched trend.

In the short run, conflicting signals abound for GLD. It recently carved out a pair of higher pivot lows, complete with a rising 20-day moving average. Unfortunately, its last rally attempt was rejected in short order, resulting in the formation of a lower pivot high.

GLD

Source: OptionsAnalytix

Further muddying the waters is the inability of gold prices to stay above the declining 50-day moving average.

The GLD Trade

When mixed signals abound, it’s typically best to defer to the larger time frame, which in GLD’s case is bearish. Traders looking to capitalize on the eventual downside resolution to gold’s dithering could sell bear call spreads to profit.

Sell the Oct $112/$116 call spread for 60 cents or better. The vertical spread is initiated by selling to open the Oct $112 call and buying to open the $116 call.

The max reward is limited to the initial credit and will be pocketed if GLD remains below $112 by Oct expiration. The max risk is limited to the distance between strikes minus the net credit, or $3.40, and will be lost if the GLD ETF rises above $116 by expiration.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/gld-etf-bet-gravity-gold/.

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