The price of gold — and thus the SPDR Gold Trust (ETF) (NYSEARCA:GLD) — has lifted about 10% off its summer lows along with the bounce in other risk assets. And while the yellow metal is far from out of the woods in the bigger picture, gold prices are assuming a more promising posture — one that could see more appreciation into the first quarter of 2016.
Since the GLD ETF topped out in fall 2011, gold bugs and other dramatic gold defenders have notably quieted down. Sure, some perma-bulls are still loud-mouthing their opinions, but they have become few and far between — which, from a contrarian perspective, supports the thesis that gold prices can slowly begin to climb again.
Inflation and inflation expectations remain low, but even a moderate increase in inflation could be enough to see gold slowly push higher for the time being.
GLD ETF Charts
On the multiyear weekly chart, we see that the sharp drop from the 2011 highs in August led the GLD ETF to break below the 61.8% Fibonacci retracement of the entire bull fun from the 2008 lows to the 2011 highs.
Although the GLD remained within its downtrending channel, this spooked another set of investors and led to selling that may have been capitulatory in nature, at least through a multimonth lens. From this perspective, however, the major downtrend lines remain intact, which means the trend remains lower in the bigger sense.
However, some clues are beginning to paint a more hopeful picture for gold.
On the next chart, I divided the GLD ETF by the S&P 500, and this so-called ratio shows that the relative weakness of gold versus stocks in August may have been a wash, as gold quickly rebounded back above the black horizontal. The ratio is now consolidating and could ultimately lead to a break higher. Relative strength of gold versus stocks in the bigger sense would be a risk-off sign and keep stocks capped on the upside.
Lastly, looking at the daily chart of the GLD ETF, note that the recent run-up has pushed it past diagonal resistance from January, as marked by the black dotted line, and last week also pushed it into its red 200-day moving average.
In the immediate-term, GLD may be somewhat overbought, but active investors could either look to buy the next bullish reversal or a break past $113.50 for a move that could lead to a first price target near $116, followed by possibly $120.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
