Gold — as represented by the SPDR Gold Trust (ETF) (NYSEARCA:GLD) — is higher by about 27% year-to-date in what mostly has been an orderly ascent. While many asset classes saw a notable drawdown in the first two months of the year, GLD began climbing in January right off the bat. As a result, from a trend following perspective, gold has gained traction.
Barring any major outside forces, I see GLD continuing this climb in coming months. So today, let’s look at the critical juncture you should be paying attention to.
The debates among gold bugs and global macro investors go back and forth over whether gold is a flight to safety or a play on low inflation/deflation/hyperinflation. I don’t have a 50-page dissertation on these debates.
Instead, I just want to point out that when gold trends, it tends to do so very nicely, and for multiple years.
GLD ETF Charts
First, let’s get some perspective on gold prices via the multiyear chart of the GLD ETF. Here we see that gold topped out in a dramatic fashion in 2011 as it began a vertical rally whose rate of change was simply unsustainable. It was a classic case of greed and the fear. No one wanted to miss out as bullishness maxed out, and people stumbled over each other to buy gold until there were no buyers left.
By late 2015 and into early January of this year, GLD had dropped about 45% off those 2011 highs. As a result, the fund also reached an important price level around the $100 mark, which from 2008 until the second half of 2009 served as resistance. Thus, a previous area of resistance became support, which I marked on the chart with the blue horizontal box.
The year-to-date rally meanwhile has pushed the gold ETF back to the upper end of the trading range with the two black parallels that I drew on the chart. A break above there could get a next leg higher underway.
On the daily chart, we see that gold’s rally this year has pushed GLD to horizontal resistance around $130. If that is overcome, we could see a next leg higher into $140 and ultimately toward $150 over the next quarter or so.
Gold has spent the past month-and-a-half in a consolidation phase. In my opinion, GLD must be able to overcome the $130 area on at least a daily closing basis for the next leg higher to get underway.
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