GLD – Gold Looks Weak, But Could Bounce

by Serge Berger | January 7, 2014 11:20 am

Investing in gold can be done from two very distinct points of view: You can see gold — or a gold ETF like the SPDR Gold Trust (GLD[1]) — as a long-term holding and diversification play, or you can trade it within a multiday or multiweek time frame.

Those investing in gold with the former position have hopefully been learned an important lesson since the gold top in 2011: Gold, just like any other asset class, can move down as well as up.

Plus, investing in gold cannot be done in a vacuum. Rather, investors must consider its standing relative to other asset classes. And considering equities seem to be trading toward the end of a cyclical bull market but in the beginning of a secular bull market, all while interest rates are trending higher, I expect to see gold continue to trend lower in 2014.

On the other hand, the GLD ETF has offered plenty of opportunities in recent years for the more trading-oriented crows,  … as long as one kept the downward trend in mind.

And from a trading perspective, I expect to see at least one good bounce in gold in 2014. This will likely come when folks realize growth has been slowing at the margin, which would then usher in a 5% to 10% correction in equities.

How to Play the GLD ETF

Thanks to the recent rally in gold, the GLD ETF is at roughly the same price level since my last update from Dec. 5[2]. In the bigger picture, not much has yet changed for gold, which is to say that the primary trend remains lower.

But once again, a bounce trade may be in the near-term cards.

To gain some perspective, let’s consider the below two charts of the GLD ETF. The first is a regular arithmetic chart, which shows that the decline in GLD has now re-tested a multi-year up-trend.

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The next chart of this gold ETF is over the same time period, but using a logarithmic calculation, which in essence smooths out the gyrations. On this chart, the GLD ETF broke below its multi-year uptrend and (after a re-test) is now again trending lower.

The takeaway: Even if we consider the chart above, gold here has lots of work to do in order to get back on its feet. And right now, little to no signs of a recovery in gold are in sight.

Click to Enlarge

For a closer look at the GLD ETF, note on the below chart that the recent re-test of the summer lows has led to a bounce and a breakaway gap on the daily chart (blue arrows). Both the 50- and 100-day simple moving averages, however, are looming large above. From a trading perspective, those offer good profit-taking areas for those inclined to swing this way.

Click to Enlarge

I will end this my latest muse on investing in gold with the same sentence that I used back in December: Until buying pressure increases, don’t bother looking at GLD from the long side.

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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here[4]. As of this writing, he did not hold a position in any of the aforementioned securities

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