The price of gold as represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD) has rallied about 27% year-to-date, and the core of this trend doesn’t show any signs of abating. However, like any asset class, gold also doesn’t rally without putting in at least short pauses — and the most recent two-week rally may soon be in need of such a pause.
Just as the gold bugs/bulls seemingly gave up their fight in late 2015 after a few brutal years of gold trending lower, the yellow metal started bottoming and earlier this year began climbing out of the ashes. Along the way, the GLD ETF has overcome a plethora of technical hurdles and has become one of the best uptrending assets of 2016 thus far.
The current environment of ultra-low interest rates and low inflation and economic growth argues for further gains in gold, but should the U.S. dollar begin to accelerate higher, gold might be subject to a stronger headwind.
GLD ETF Charts
On the multiyear weekly chart, we see that GLD made an initial drop in 2011 and another in 2013, but then began to settle into a well-defined downtrend that lasted from the second half of 2013 into February of this year.
In February, the gold fund staged a notable bullish breakout by not only pushing above the channel (black parallels), but also by overcoming its blue 100-week simple moving average. The GLD ETF then began to settle/consolidate above this previous area of technical resistance as previous resistance became support. Then last week, GLD also pushed above its red 200-week SMA for the first time in a very long time.
While I think ultimately this gold ETF can break above the 200-week and hold, at the moment, the odds favor another consolidation phase first.
On the daily chart, note that since the most recent reaction low in early June, the GLD ETF has seen a series of up-gaps that I marked with blue arrows. Last Friday, the GLD gapped higher again and as a result became extended above its 8- and 21-day SMAs (blue and yellow lines respectively). In my experience, whenever the GLD leaves behind a series of daily up-gaps and becomes extended above its near-term moving averages, it does not pay to chase it higher over the next few weeks.
Active investors and traders could look to lighten up on long positions with the intent to buy again lower and/or begin legging into initial short positions upon the next bearish reversal day, where an intraday rally fails to close strongly by day’s end.
From this perspective, the GLD could mean-revert back into the $123-$124 area before better buying opportunities arise again.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
