Medium term
Trade view / 24 June 2016 at 9:03 GMT

After the earthquake – how gold may go higher still

Trader /
United States

Britain's decision to quit the European Union is painting financial markets with a decisive risk-off colour. But safe-haven assets like gold are getting a boost and barring any dramatic reversal of this initial reaction to the referendum, gold may now be ready for its next leg higher.

On June 16 I took full profits in my long-side trade in the popular GLD etf. After some back and forth this morning, gold is spiking higher and as we will see on the below charts, giving us initial signals that a renewed breakout attempt may be at hand.

As a side note, while my go-to trading vehicle for gold is the GLD etf (GLD:arcx) the below charts reflect the gold futures price because the GLD has as of this writing not yet begun trading for the day.

On the multi-year chart we see that gold as of this morning is attempting another breakout past diagonal resistance measured from the 2011 highs. There's no reason to overcomplicate matters, this is the line in the sand for gold in my opinion, through the lens of this timeframe.


Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more

On the daily chart we see that after gold became overbought in mid June (where I took profits in the aforementioned trade), it pulled back and with today's rally so far left another higher low behind on the chart – see circle on chart. Clearly gold so far today is now giving a breakout of the multi-month range a good shot, the question is where it can land on a daily and weekly closing basis.

Source: Saxo Bank

Management and risk description

Sometimes big toggle points in markets such as the UK referendum vote can first see a fake reaction before a truer read in markets comes to fruition. As such the risk to this trade is that this initially rally in gold quickly fades and leaves a big bearish reversal behind on the charts.


Entry: Buy the GLD etf upon a daily close above the $124 mark

Stop: $120

Target: $135

Time horizon: 2–4 weeks

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
24 June
Jeff Carnes Jeff Carnes
"GLD etf"

Speaking of which, why is there a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create this massive audit loophole? I haven't heard of a single good reason for the existence of this loophole so far. In addition to the audit loophole, GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion.

I also remember CNBC's Bob Pisani visiting GLD's vault in a well documented segment. GLD's administration arranged this visit to disprove everyone claiming that GLD's gold did not exist. However, Mr. Pisani held up a gold bar with the following serial number - ZJ6752. This serial number did not appear on the most recent bar list during that time period. Cheviot Asset Management’s Ned Naylor-Leyland later found out that this "GLD" bar actually belonged to ETF Securities.
24 June
Jeff Carnes Jeff Carnes
GLD's prospectus neglects to indicate the amount of gold that is insured. It only gives you this vague statement "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." As I needed clarity on this subject, I contacted GLD's hotline. The GLD agent claimed he didn't know and said they were only the marketers for GLD. What sort of marketers would not know such basic information about one of their biggest financial products? It looks like they are intentionally concealing information from investors. They definitely don't strike me as the most honest types. Anybody have similar issues after calling in? Thoughts?
24 June
Ole Hansen Ole Hansen
Hi Jeff, I've noticed you have expressed your concerns about GLD on a regular basis when this ETF has been mentioned. My primary concern from a trading perspective is to have a product available which provide an accurate tracking of the underlying while having good liquidity so orders can be handled satisfactory. During the market turmoil in 2008 and early 2009 when the market was questioning the survival of the financial system gold ETF's performed perfectly despite some aggressive market swings. I attach a chart showing the price development of XAUUSD and GLD.
24 June
goldfinger goldfinger
I think you miss the point Ole. Jeff has a concern that has not been clarified either by the company, or, anyone else. It would appear that GLD can't confirm the level of bullion held and, to not put a finer point on it, there has been a degree of obfuscation.. If I have misunderstood, I apologise. But I think the claim requires clarification. I don't want to be putting money into scotch mist
24 June
Philidor Philidor
You can always buy futures instead. The trade idea is still valid.
26 June
James Benjamin James Benjamin
Surely the prime characteristic of gold in such times is its unquestioned intrinsic value of bullion itself. Owning shares in an etf gives an investor exposure to its price movement (of sorts) but does not remove the counterparty risk. As I see it, we are likely to see credit dry up and banks under enormous distress, some will disappear - then the contagion would be severe.
27 June
Bill_K Bill_K
Ole, GLD's entire value is derived from its questionable "bullion holding" claims. This should be a concern for all serious traders.


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