Strategic trade
Trade view / 25 August 2016 at 8:35 GMT

UPDATE: Gold trend unchanged despite Wednesday dip

Trader /
United States
Price target:
Market price:

On August 11 I detailed a trade view stating that the primary year-to-date trend in gold as represented by the popular SPDR Gold ETF (GLD) (GLD:arcx) remains intact. While this trend is unchanged, Wednesday's selling pressure in the yellow metal does warrant an update.

On Wednesday the GLD etf dropped 1.11% and violated a first and near-term technical support area while gold miners as represented by the GDX etf, which some traders use as a levered proxy to trading gold got clobbered to the tune of 7%. This now begs the question as to what this move may say about Janet Yellen's statements on the state of interest rates on Friday. Could she sound more hawkish than what many on Wall Street expect?

Despite the selling pressure in gold and gold miners on Wednesday, the bigger picture for the GLD etf remains unchanged from August 11. This is to say that the breakout of the multi-year down-trend is still unharmed and through a multi-week/month lens the yellow metal remains in a consolidation phase. Through this lens, buying the dip in gold, but only upon a bullish reversal, still makes sense.

Source: eSignal

On the daily chart we see that Wednesday's dip in gold not only broke it out of a tight multi-week trading range but also violated the yellow 50-day simple moving average for the first time since May as gold fell to a one-month low. At the same time, gold does remain in its multi-month consolidation phase (blue box) and so far is also holding its diagonal support line.
The key here now is not to blindly buy the GLD just because it broke to the bottom end of its trading range but rather to wait for signs of seller exhaustion and visibly clear signs of buying, i.e. a bullish reversal day or week.

Source: eSignal

Management and risk description

Since a breakout above $130 on a daily closing basis since my posting of this idea on August 11 never occurred and thus never triggered a long-side trade in the GLD, I am now on watch for bullish reversals as a signal to possibly get long the GLD. Patience is a virtue as is a sound risk management process.


Entry: Buy the GLD etf or CFD thereof upon the next notable bullish reversal, i.e. bullish daily or weekly candle

Stop: A break below $123 and the blue 100-day moving average

Target: $135

Time horizon: 1–3 months

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
Georgio Stoev Georgio Stoev
It looks that way!
Traders can also consider using selling options if mildly bullish on gold on GCV6 1320/1315 put spread or GLD 23 Sep 125/123 put spread that produces $0.70 credit
Serge Berger Serge Berger
Agreed, although personally I would like to see some sort of bullish reversal first before slathering on short put spreads.


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