GLD Will Have Trouble Running Higher

by John Kmiecik | April 29, 2013 1:50 pm

The trade: Sell the GLD May 3 144/146 call credit spread (selling the May 3 144 call and buying the May 3 146 call) for $0.40 or better.

If you own gold, you generally want the price to rise. If you have owned gold over the past month or so, you have not been pleased. Here is a trade idea that will please gold traders — especially if gold drops in price.

Gold prices look like they fell off a cliff a few weeks back, and now prices have been rising with almost equal fervor. On Friday, SPDR Gold (NYSE:GLD[1]) raced up and traded just short of a critical pivot level for the ETF and then finished lower on the day. A weaker-than-expected report on the U.S. economy could have been a contributing factor, as gold is often used as a hedge against possible inflation worries. That pivot level is somewhat critical — the ETF closed right about $144 on April 10 and continued its plunge the next day.

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You might not think that closing price is a new resistance for GLD, but a glance at a two-year chart may make you change your mind. Back in May and July of 2011, that area acted as a strong area of support for GLD — each time it traded close to $144, GLD responded by moving higher. Now support has become resistance for GLD, which should be able to keep the ETF from moving higher … at least for one more week.

At the time of publication, Kmiecik had no positions in the securities mentioned.

  1. GLD:

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