The continued and seemingly relentless slide in gold prices remains a major pain trade for many gold bugs and macroeconomists. Indeed, the daily mentioning of gold as a worthy asset class over the past few years has slowed to the point where many gold bug websites are no longer to be found.
While it is a silly exercise trying to bottom-pick any asset, the current technical juncture of gold as represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD), coupled with other tailwinds for the yellow metal, are worth looking at.
When I last discussed a trade idea in the GLD ETF on Oct. 21, it looked likely that better upside momentum was just around the corner. My buy trigger point for a trade ($113.50 or higher) never triggered, however, and just a few days later the ETF signaled a major bearish reversal that led to another dramatic selloff.
GLD ETF Charts
Despite the renewed selling pressure over the past couple of months, however, the bigger picture still stands with a bullish undertone — one that I cannot ignore. After a multiyear bear market, the GLD ETF over the past month or so has reached important horizontal support, as marked by the blue bar on the weekly chart below. This area around the $100 mark served as resistance back in 2008 and 2009 and now may well act as support in the bigger sense. Since the 2011 top, momentum of the selloff has bottomed (in 2013), and has been flashing positive divergence from price ever since.
Ultimately, that should spark a release higher in price.
Much of a rally in gold in 2016 of course depends on the macro environment around us (so, real inflation, inflation expectations, interest rates and the dollar). With equities very long in the tooth in this cyclical bull market and at risk of a good 20%-30% correction at some point in 2016, gold could get an initial boost in 2016 from this dynamic alone.
Then, should the Fed reverse course on its marginally hawkish stance, and should that lead to the dollar’s surge stopping, gold could get an even stronger bid.
With the above bigger picture around gold in mind, let’s note the price action on the daily chart below. The GLD ETF in November broke below its summer lows and has been basing below there ever since. The price action, however, looks to be coiling up for a push back above horizontal resistance (red dotted line), which from a pure price perspective could be a trigger for better near-term upside into the $108 area.
As with all assets, we must distinguish between time frames for the GLD ETF.
While the overall picture for 2016 for gold looks increasingly promising, in the near-term, unless the GLD ETF can push past horizontal resistance around the $104 area and hold, then price action as the only true arbiter is simply not yet signaling better near-term upside momentum.
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