Since I last banged my drum on the state of gold here on January 29th (, the SPDR Gold Shares ETF (GLD) has reached and in fact undershot my target near the $155 level.  A combination of (at least in some minds) a better economic backdrop and a rising U.S. Dollar took the near-term bottom of out gold on February 15th and in the process silenced the gold bugs and other self-declared ‘long-term trend followers.’

I shall show the following chart of Gold versus the S&P 500 again.  Much like in August 2011 the spread between the two keeps widening, although back then the chart was inverse, i.e. gold was up and equities down.  As I will discuss shortly, until gold finds better confirmed footing this spread will have a hard time putting together a significant mean-reversion move, i.e. tightening of the spread between the two.

The following analysis very much reflects technical analysis 101, yet in my opinion is one of the cornerstone points that investors and traders alike don’t focus enough on; long-term trends don’t snap in one day, they often first move sideways before really reversing in the opposite direction.

Case in point, through a longer-term lens the SPDR Gold Shares ETF (GLD) broke its up-trend in the spring of 2012.  Instead of immediately putting its gears in reverse however we have since ‘enjoyed’ much sideways shuffling.  A series of lower highs has so far only led to the retesting of a lateral support area near $148 – $150.  In other words, the lower highs have yet to shower us with a lower low, and thus confirming a change in the longer-term trend.

Closer up, on a daily chart of the SPDR Gold Shares ETF (GLD) note that from a momentum point of view the recent sell-off may have exhausted itself somewhat.  Another 2.00% – 3.00% of downside would get this ETF to the above mentioned support zone.  Given the rather steep sell-off in recent weeks it is somewhat unlikely that the support zone ($148 – $150) would get sliced through immediately.  More likely what’s in order over the next few weeks is some backing and filling in order to either establish a better low to trade against or for price to settle enough for sellers to again be able to push the price of gold lower.  At such point from a swing-trader point of view risk/reward will get better again.

In summary, I find the risk/reward of chasing the downside here to have worsened significantly and the attraction of sipping some top shelf on the sidelines for the time being has much increased.




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