Gold as represented by the SPDR Gold ETF (GLD) (GLD:arcx) so far for 2016 has rallied about 27% and is thus one of the very best performing assets. There have been trades along the way on the short side when the GLD overextended its rally in the near term, but the primary trend remains higher.
A basic principle of trend following and one by which to manage a trend is to buy low and take partial profits at the top of the respective trading range. This strategy has worked well so far in 2016 in gold and using the GLD ETF. Gold is now however reaching an even more important technical juncture from where a next leg higher could materialise.
The multi-year weekly chart reveals that while the bear market in gold from the 2011 highs down to the late 2015 lows was material in its magnitude but also held an important technical juncture as support. I marked this area around $100 with a blue horizontal bar on the chart. The rally off those late 2015 lows has so far pushed the GLD back to the upper part of the two parallel lines, i.e. the trading channel and is now threatening with a potentially more meaningful breakout.
On the daily chart we see that the GLD ETF in May bounced off its rising blue 100-day moving average and that this continues to be a good line of reference for risk management purposes. For the past month and a half the GLD has been consolidating below horizontal resistance around the $130 mark, which I highlighted with the black horizontal line. The longer GLD consolidates below this line without breaking down the better the odds of a more meaningful next leg higher.
Management and risk description
From a risk management perspective technical support on the GLD stop loss areas would be $125, followed by $123 which is where the 100-day simple moving average comes in.
: Buy the GLD upon a push above $130 on a daily closing basis
: 1–3 months
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more