Gold, awaiting price confirmation

On February 21st I discussed here ( ) that risk/reward was unfavorable for those looking to chase gold lower at the time.  Since then gold has indeed refused to go lower and even bounced a little higher.  Now, some 5 1/2 weeks later I am looking at gold in the greater context as it relates to near-term movements in the equity markets.  To be exact, I am considering buying the SPDR Gold Shares (NYSE:GLD) for a few percent if and when equity prices should find it within themselves to take a little breather and correct in price to the downside for more than a few ticks.  Silver  on the other hand I find extremely difficult to like for upside at this juncture, at least not until more bullish price action were to shine through.

For a little perspective and just because I love drawing charts, let us look at a longer-term chart of gold via the SPDR Gold Shares (NYSE:GLD).

The massive run up in gold peaked with a vertical leap in September 2011 and formed a series of lower highs ever since.  What continues to be missing is a lower low, which would confirm a change of trend.  Important to understand for these longer trends is that tops are not points but rather processes that first lead to sideways movements before an more meaningful downtrend can kick in.  A lower low would be confirmed on a solid break below $148 on the SPDR Gold Shares (NYSE:GLD).  In other words, I remain bearish on gold over the medium and longer term.

Let this longer-term chart of gold also be a reminder to those attracted to perma-bullishness on the flavor/asset of the month that gravity ultimately wins out.  Those who didn’t learn from gold surely must have gotten a hint from the latest example in the big sell-off of Apple Inc. (AAPL) since last autumn.

Near-term however I continue to see upside for gold.  While longer-term correlations between stocks and gold are floppy, the short-term inverse correlations during price corrections in stocks is remarkably reliant.  Hence my interest in picking up some gold via the SPDR Gold Shares (NYSE:GLD) should a correction in stocks be confirmed by price action.

On the closer-up chart of SPDR Gold Shares (NYSE:GLD) the level I am watching is $156.75.  A daily close above there would move this ETF past its February highs and likely also break the downtrend in place since last October.  Given near-term inverse correlations between stocks and gold, a break above said level is likely to occur on the back of initial price weakness in equities.


Watch More:

Leave a Reply

Your email address will not be published. Required fields are marked *