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A Technical Perspective on SPDR Gold ETF

GLD IAU

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After it attained multi year highs and ended last fiscal year in the green for the 12th straight year, the yellow metal seems to be struggling so far in 2013. The SPDR Gold ETF (GLD - ETF report) which tracks the spot prices of gold, is down about 4.13% so far this year.

In fact looking at the price pattern for the Gold ETF, it can be said that it has been facing technical weakness for quite some time now. After getting a sold boost post QE3 announcement by the Federal Reserve, the ETF made its 52 week high, but failed to sustain those levels.

The ETF had earlier formed bearish patterns during the latter part of last year and has continued the weak momentum forward, into this year. GLD has very recently broken through a very strong support level of $160. Subsequently, the support breakout was also characterized by another bearish triangle breakout as shown in the chart.

Since the start of 2013, the price movement of GLD had been exhibiting rangebound activity. However, what seemed like some sort of consolidation around the $160 support mark was scrapped by the bearish breakout.

It is also worthwhile mentioning that in the few trading session following the breakout, the bearish bias has been very strong as it is indicated by the high volumes. These volumes, ― shown in the encircled portion in the volumes chart, were higher than the 50 DMA volume line (read Two Unconventional Sources of ETF Yield).

Also, the more responsive 50 DMA line (blue) is on the verge of a death crossing with the 200 DMA line (green). If it does this, it will surely be bad news for GLD investors. As we can see the 50 DMA line has already intersected the red 100 DMA line earlier. Accordingly, the ETF is trading well below its key trend lines of 50, 100 and 200 DMA.

Having said this, it is prudent to note that after the vicious sell off recently, the ETF has entered deep into the oversold territory. The RSI with a reading of 25.53 and the Williams R indicator with a value of -90.92 signify the oversold position (read Palladium and Platinum ETFs to Soar?).

In this regard it is imminent that the ETF will probably witness some sort of a rangebound activity or even a spike, in the subsequent few trading sessions, just in order to heat up this highly oversold counter.

Having said this, it is prudent to note, that the risk-on environment has well and truly swept the market, with the equity markets making new highs. Therefore, the safe haven nature of the yellow metal has failed to make it a good candidate for investors. Not to forget that the inflation levels are still very low irrespective of the Fed’s easing. Therefore the hedge against inflation also does not seem to be working for gold.

Therefore, at least in the short term the outlook for the Gold ETF GLD seems to be headed in the wrong direction. However, with the equity markets due for a ‘healthy’ correction (if not downturn), the safe haven is bound to return for the yellow metal (see Do Large Cap ETFs Signal Trouble Ahead?).

Furthermore the Federal Reserve seems determined enough to continue their monetary easing till the inflation and unemployment threshold levels are met − which by the way, are quite far from current levels. These are most probably going to be the driving factors for the ETF especially in the longer term.

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