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

by on November 7, 2012 | ETFs Mentioned:

Bullish sentiment permeated Wall Street yesterday as voters lined up to cast their ballot. All of the major indexes ended up in positive territory, surprising many who were expecting volatile trading ahead of the finish line to the presidential race. While optimism reigned supreme at home, overseas markets were also quite upbeat; Australian equities in particular staged a nice rally on the day after the nation’s central bank held rates steady at 3.25%, holding back from cutting the rate to 3.0% like many were anticipating [see also Vote For Obama Or Romney With These ETFs]

With all eyes on the political front at home, our ETF to watch for the day is the State Street SPDR Gold Trust (GLD, A-), which should see an uptick in trading activity as markets digest election results. Gold’s performance on the day may offer valuable insights as far as investors’ sentiment goes, however, recent political developments will unlikely have a material impact on the yellow metal’s long-term fundamentals [see GLD-Free Gold Bug ETFdb Portfolio].

Chart Analysis

Gold prices have endured a steep correction since failing to break the $1,800 an ounce price level in early October of this year. Since recently peaking at $174.07 a share on October 4, 2012, GLD appears to have a completed a healthy pullback as prices are currently holding above their 200-day moving average (yellow line). While GLD has managed to “bounce off” its historical moving average, recent bullish price action should be taken with a grain of salt; notice how this fund previously staged several “false reversals” when it last failed to summit the $175 level earlier this year [see Free 7 Simple & Cheap All-ETF Portfolios].

Click to Enlarge

For those bullish on gold, the recent pullback presents itself as an attractive opportunity to jump in long; however, we advise more conservative investors to observe how GLD behaves as it nears historical resistance levels once again before pulling the trigger [see 101 ETF Lessons Every Financial Advisor Should Learn].

Outlook

If the election results prompt a broad “risk-on” trade, gold prices will likely tumble lower; in terms of downside, GLD has major support around $162 a share followed by the $160 level. On the other hand, a bearish reaction in the equity market may prompt a rally for the safe havens; in terms of upside, this ETF has resistance at $170 a share followed by the infamous $175 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.