Last week, the market loved the idea that many businesses could start to get back to normal again soon, but it looks like we are starting the week on a low note as oil crashes to its lowest price in 21 years.
Despite last week’s bullishness, investors were hesitant to abandon their safe-haven positions in gold, and I think now is the perfect time for a bullish trade on SPDR Gold Shares ETF (NYSEARCA:GLD).
Even if businesses do reopen, the economy won’t return to normal overnight. Stocks that pay strong dividends and sell products that consumers can’t live without will likely do well, but gold is still the ever-popular asset for frightened traders.
Crossing Above $1,700 Per Ounce
Gold is doing quite well, and I would expect that trend to continue. As you can see in the chart below, gold broke above short-term resistance last week and traded above the $1,700 per ounce level.
Daily Chart of Gold — Chart Source: TradingView
It dropped on Friday as the market rallied, but it remains one of the best hedges against uncertainty in the market. And as I have repeatedly reminded my regular readers, there is still plenty of uncertainty.
We haven’t seen the full picture on the current earnings season just yet, and analysts are expecting weakness in the coming quarters as well. As I just said, the economy isn’t going to get back to normal overnight.
The Oil Drop Will Boost Gold
GLD is an ETF that tracks the price of gold, so it will naturally benefit from rising prices. The problem with oil this morning has to do with a fundamental issue: lack of demand.
The U.S. is running out of storage space for all the oil being produced, and none of that oil is being used because the economy remains shut down. Even if some states reopen, demand won’t be anywhere close to previous levels.
Gold is the safety net when stocks start to fail, and a push out of oil (and stocks in general) means that money has to go somewhere. Interest rates are low, so bonds aren’t appealing. Where else can people turn?
Daily Chart of SPDR Gold Shares ETF (GLD) — Chart Source: TradingView
The technical picture for GLD is a little hard to describe. Gold rose above resistance last week, and GLD followed, which is good. But gold’s rise has been sharp, which can mean a rally is unstable.
Still, there’s no denying that the market is dealing with unprecedented levels of uncertainty. I think gold, and thus GLD, will continue to rise.
Buy to open the SPDR Gold Shares ETF (GLD) June 19th $179 Calls (GLD200619C00179000) at $2.00 or lower.
InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.