SPDR Gold Trust (ETF) (GLD) — This commodity ETF is one of the rare pure plays on gold since it holds physical gold bullion and seeks to track the price of the yellow metal, minus fees and expenses. This also means the price of the fund can be affected by currency changes, interest rates and geopolitical events.
Commodity ETFs use derivatives, options, forward contracts, correlation or inverse correlation, and leverage to meet their objectives and are by their nature subject to greater volatility. But GLD’s correlation to the price of gold makes it a good hedge against a falling stock market, rising inflation and global economic crises. Indeed, shares rallied 1.4% on Monday as stocks plummeted.
GLD declined 10.7% in 2015 in a market in which commodities were not in favor — to put it lightly. The ETF is in a bear channel with a resistance line at about $110 and support at about $95. However, buyers began to appear in December with several high-volume up days.
GLD has formed a rectangle within the downtrend, which could signal a bottom, especially since many public holders liquidated their positions in this fund in November.
Buy GLD at $102 as a short-term hedge against a possible breakdown in equities, as well as a recovery in hard assets. A trade to $110 is possible if the ETF breaks out from its current consolidation, which would result in a gain of nearly 8%. Long-term investors may also want to consider buying GLD as a hedge.
