Equity indexes gapped higher and held their ground yesterday as euphoria and expectations for more stimulus ahead of today’s Fed decision kept investors’ confidence afloat. Judging from the positive price action on Wall Street i’ts fair to say that economic data releases took a back seat yesterday; housing starts came in at 708,000 for the month of May, falling short of the 720,000 analyst estimate as well as last month’s reading of 744,000 [see also Should You Buy Gold Before QE3 Is Announced?].
The much anticipated FOMC decision will take place later today, which makes our ETF to watch for the day the State Street SPDR Gold Trust (GLD). This fund may experience volatile trading as investors digest the latest economic commentary from the Fed, along with the potential announcement of an additional round of quantitative easing [see also How To Play A Treasury Bubble With ETFs].
Since the beginning of May 2012, domestic equity markets and gold have exhibited fairly similar price patterns; both asset classes have endured a correction and appear to have regained their footing over the past two weeks. One noteworthy difference however is that equities, as represented by SPY, are above their 200-day moving average, while the price of gold, as represented by GLD, is below this long-term average (yellow line). GLD appears to have bounced off support at the $150 level, although it may still encounter resistance as it approaches $165 a share seeing as how it previously failed to summit this level back in March of this year [see GLD-Free Gold Bug ETFdb Portfolio].
From a fundamental perspective, GLD could face serious headwinds later today if Chairman Bernanke’s commentary sparks a rally for equities and investors jump ship from this yellow safe haven.
If the Fed holds off on additional stimulus, selling pressures could sweep over Wall Street and propel safe havens like gold higher. In terms of upside, GLD could jump to $160 a share, although caution should be exercises as it nears $165 a share, seeing as how this is a historical resistance level. On the other hand, volatile profit taking may knock this commodity lower; in terms of downside, this ETF can sink down to $155 a share with major support coming in at the $150 level. 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.