After outperforming stocks and many other asset classes for most of the year, gold — as represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD) — has slipped in the rankings and it is now only higher by about 7% for the year on the back of the Trump stock market rally. Although GLD does not show any promising signs when you look at it through a six- to possibly twelve-month technical lens, in the near-term a tradeable oversold bounce looks to be increasingly likely.
In order to understand where gold and the GLD exchange-traded fund currently trade at, we must recount how we got here. As both economic growth and inflation pressure continued to slow in the first part of 2016, the gold ETF enjoyed a bid.
However, as summer turned into fall, gold prices started to struggle and they began showing some absolute weakness in addition to the relative weakness versus stocks that it had already been displaying months prior.
While I am always open to see both sides of a trade and I abandoned my bullish posturing in GLD towards the end of the summer, I will be the first to admit that I was surprised by the magnitude of the sell-off since the election, which now may provide another trading opportunity.
GLD Stock Charts
On the multi-year weekly chart we see that after the GLD marginally broke above its red 200-day simple moving average this past summer, ultimately the joy did not last long as prices once again broke below the moving average and got rejected by the black diagonal resistance line. As a result of the recent sharp drop, GLD is now slowly but surely entering oversold territory in many ways, and on the weekly chart, it is at price levels last seen in January.
On the daily chart, we see that because of the selling spree after the election results in early November, the gold ETF’s intermediate-term moving averages, the yellow 50-day, the blue-100 day as well as the red 200-day moving averages, are all pointing lower.
Additionally, the 50-day moving average has crossed below the 200-day and now even the 100-day average is attempting to cross below the 200-day. Generally, I prefer to only buy stocks and ETFs that trade above their 50- and 100-day moving averages. Therefore, for the time being, when GLD does flash a confirmed signal for an oversold bounce trade, I would only treat it as such and not begin legging into longer-term positions in the yellow metal for the time being.
From a momentum perspective, as represented by the MACD oscillator at the bottom of the chart, GLD is exhausted towards the downside in the near-term. But at this juncture, a strong bullish reversal by price is still missing. In the absence of this, I am still in “wait and see” mode, but either a washout in price toward the very low $100s or a bullish reversal that sees GLD back above $110 on a daily or weekly closing basis could set up a bounce trade back toward the $115- to $120-area.
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