Tuesday’s ETF Chart To Watch: SPDR Gold Trust (GLD)

by on September 20, 2011 | ETFs Mentioned:

Equities started the trading week in a hole so speak, opening far below Friday’s close on Monday morning. Stocks did manage to regain some lost ground before lunch time though, and industry giants in the tech sector lead the way higher for much of the day. Investor sentiment in regards to the euro zone is back into pessimistic territory as policymakers failed to come up with a concrete plan over the weekend and last week’s hopes of easing the debt crisis have quickly evaporated.The outlook for the U.S. housing industry also took a hit as the National Association of Home Builders reported a drop in the builder’s sentiment index to 14, from last month’s reading of 15. David Crowe, the NAHB’s chief economist, said that the weakening economy and high unemployment have made short-term prospects for the homebuilding industry “fairly bleak”.

Amidst this persistent uncertainty, U.S. Treasuries and bond futures made their way higher for the day, while gold took a dive lower with futures prices sinking back below $1,800 an ounce. Wall Street will likely remain plagued with volatility as investors wait for reassuring news from the Fed’s most recent meeting, with a key FOMC decision on tap this Wednesday afternoon.

Gold has been no stranger to news headlines this summer as the hot yellow metal has made its way to record highs almost every week it seems, attracting massive capital inflows given the escalating worries over the recent U.S. credit quality downgrade and ongoing debt drama in the European currency-bloc [GLD Close To Overtaking SPY As The Largest ETF In The World]. Economic indicators both at home and abroad have been less than stellar, and many investors are worrying that the recovery is progressing at a dangerously slow pace, with the possibility of another recession certainly looming on the minds of many.

Chart Analysis

Year-to-date, the SPDR Gold Trust (GLD) has outperformed the SPDR S&P 500 ETF (SPY) by a margin of about 20,000 basis points. Over the last month of trading, however, GLD has lagged behind SPY, the funds gaining around -4% and +6%, respectively [see GLD Returns]. From a fundamental perspective, this divergence in short-term performance could suggest that investors have in fact regained some confidence and have gradually begun to re-allocate assets to riskier corners of the market [consider Three Alternate Safe Haven Currency ETFs].

One piece of evidence that goes against this hypothesis, however, is that U.S. Treasury funds, like TLT and IEF, have also worked their way higher alongside rising stocks. In fact, these ETFs have even better held their ground during gold’s recent slump, perhaps suggesting that investors aren’t quite convinced of the recent rallies in equity markets given the consistently worse-than-expected economic data dominating Wall Street [consider the new Simple (But Effective) Safe Haven ETFdb Model Portfolio].

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Since GLD hit record highs at $185.85 a share on 9/6/2011, the fund has since lost some momentum, tumbling to $174 a share and below after failing to hold support at the $180 level. Gold futures have been largely range-bound with a downward bias and the precious metal has seen some high-volume profit taking over the last two weeks since topping out at $1,923 an ounce [see In Search Of The Best Commodity ETF].

Outlook

GLD is in a tough spot right now as technical indicators are hinting at an impending correction in the short-term, while fundamental factors are still supportive of higher gold prices in the long-run. Those who are looking to long GLD this week should consider waiting as the fund will likely come back down to $170 a share, or perhaps even lower; especially, if the FOMC remains consistent with its wait-and-see approach this week and forces traders into higher-yielding corners of the market [consider Five Equity ETFs With Low Betas For A Rocky Market].

In terms of upside, GLD will continue its ascent if Bernanke hints at further monetary easing or if the euro zone debt crisis intensifies. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.