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

by on December 14, 2011 | ETFs Mentioned:

Equity markets extended losses into Tuesday as unresolved Euro drama continues to weigh down on confidence, while the Federal Open Market Committee meeting at home sparked a wave of panic selling. The Nasdaq led the way lower, down 1.26% on the day, while the Dow Jones Industrial Average proved to be most resilient, shedding 0.55%. Bearish momentum took charge on Wall Street and investors expressed their disappointed with the Fed’s decision to hold off from an additional round of stimulus. “Investor attitudes are still pretty dour, people are too busy reading headlines and not looking at balance sheets”, commented Jack Ablin, chief investment officer at Harris Private Bank.

Gold prices have oscillated rather wildly over the past few weeks as investors keep having to re-adjust their growth and inflation expectations thanks to the ever-changing landscape, with Euro zone debt woes being at the center of attention. The precious metal will look to find its footing in the coming days, although upcoming economic data release may pave the way for additional volatility [see Three Long/Short Ideas For Euro Drama]. Noteworthy releases which could have a significant impact on gold prices for the week include the Swiss bank rate decision and the Euro zone and U.S. consumer price index reports.

Chart Analysis

Gold price have exhibited a strong positive correlation with equity markets as the Euro zone debt drama has unfolded in recent months. The precious metal has been in a trading range, oscillating between $1,600 and $1,800 an ounce, since prices recently topped out at $1,923 an ounce on 9/6/2011. GLD’s price performance paints two very different pictures, depending on your perspective; since the start of 2011, GLD has gained nearly 15%, although since topping out at $185.85 a share on 9/6/2011, its price has plunged a whopping 13% [see GLD Returns].

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Profit taking pressures have certainly played a role, as traders sitting on juicy gains from the start of the year have been pulling the “sell” trigger and taking money off the table, perhaps worried that ongoing volatility would eat away at their profits [see Special Report: Gold ETFs In Focus]. 


GLD is currently sitting on a “sweet spot” from a technical perspective, seeing as how the fund has come down to support right at its 200-day moving average (yellow line). Historically, GLD has “bounced” higher after hitting this long-term moving average, although this time around things may be different. One worrisome piece of evidence is the fact that GLD has gapped lower backed by relatively high selling volume, perhaps suggesting that both mainstream and institutional investors are worried about the metal’s near-term outlook [see One Year Later: The Other Precious Metals ETF (WITE)].

GLD will look to find support around the $160 mark in the coming days, although investors should take note of the trading volume. Relatively high trading volume means that “big players” are stepping in, while a low-volume “bounce” may mislead some into thinking that GLD’s correction is complete. If support does not hold at the $160 level this week, GLD may soon re-test the $150 level. In terms of upside, this ETF has considerable resistance in the $170-$175 a share range.

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.