Gold prices have been mired in the mud for years now. It turns out all they needed was an old fashion trade war to bring all the buyers to the yard. The SPDR Gold Shares ETF (NYSEARCA:GLD), which caught fire after Wednesday’s Fed meeting, is furthering its gains with a notable price gap this morning. It’s time we take a good look at the improving technicals of GLD.
The weekly view of GLD reveals an increasingly constructive chart. Over the past two years, gold prices have carved out a series of higher pivot lows revealing increased buying aggression. Moreover, the stability has helped the 200-week moving average flatten out, which neutralizes the long-term downtrend that was hounding the precious metal. Last year’s ascent carried GLD above its 20-week and 50-week moving averages and both are now rising.
Finally, we have a cup-and-handle pattern that is on the cusp of completion. Watch the $129 zone moving forward. A vault above it would spell a big-league breakout.
A drill-down to the daily chart illustrates this bullish pattern in greater detail. This week’s rally vaulted GLD from the lower-end to the upper-end of its handle in one fell swoop. While we may see some backing and filling to digest recent gains, weakness in GLD is a buy moving forward.
Implied volatility has been rising alongside gold prices. That means the newfound strength is driving demand for GLD options higher. With an implied volatility rank of 40%, option premiums are becoming more expensive, but they are not yet in extremely rich territory.
GLD Call Spreads
If you think gold prices can go the distance in the coming months, then consider buying bull call spreads. We’ll use June options to give the precious metal ample time to stage a breakout and completion of its cup-and-handle pattern.
Buy the June $127/$137 bull call spread for $2.75. The max loss is limited to the initial $2.75 investment and it will be forfeited if GLD sits below $127 at expiration. The max gain is $7.25 and it will be captured if the fund rises above $137 by expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
