Gold ETF Analysis As Gold Prices Slowly Losing Steam

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January 5, 2013 12:43pm NYSE:GLD NYSE:IAU

Stoyan Bojinov: The last minute cliff-aversion deal in Washington D.C. set up major equity indexes for a truly impressive start to the new year. Gold, on the other hand, has kicked off 2013


with a sour string of losses, as growing risk appetites and recent comments from the Federal Reserve have taken their toll on the safe haven yellow metal. While the first few trading days are often said to be predictive of the entire year, we feel that gold prices may come under more pressure for reasons beyond historical coincidences.

Chart Analysis

The well-known State Street SPDR Gold Trust (NYSEARCA:GLD) is hovering right around a major support level around the $160 mark, leaving the doors open for speculative bulls and bears alike. GLD has endured steep profit-taking pressures over the last few days as the fiscal cliff resolution boded extremely well for equities, which in turn prompted many to jump ship from safe havens like gold. Furthermore, during the last Fed minutes there were talks about ending the bond-repurchase program in 2013; this hint inevitably spooked gold investors given that the Fed’s ultra-loose monetary policy has been a major catalyst for the yellow metal’s price. From another perspective, if the Fed feels comfortable enough to pull the stimulus plug, then it’s reasonable to assume that real economic recovery has taken root, which once again can inspire selling pressures in gold as investors flock to riskier assets.

GLD

Click to Enlarge

When considering GLD’s two-year chart above, it’s easy to see that this ETF is truly at a crossroad right now. GLD has posted lower-lows (purple line) since peaking at $185.85 a share, and thus a break below its current trend (blue line) will likely welcome accelerating selling pressures that may drag it back to its historic support around the $150 level (red line). From a longer-term perspective, GLD remains in an uptrend and its recent lackluster performance may be attributed to accumulation. However, we advise more conservative investors to wait for GLD to establish definitive support above$160 a share before jumping in long [see Most Popular Commodity ETFs].

Outlook

Over the coming weeks several key technical levels will come into play for GLD; in terms of downside, this ETF must settle back above $160 a share otherwise further downside is very likely. On the other hand, if buyers return to the gold market, GLD could stage a nice rebound; in terms of upside, the next resistance level for this ETF comes in at $165 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Related: iShares Gold Trust (NYSEARCA:IAU), iShares Silver Trust (NYSEARCA:SLV).

Written By Stoyan Bojinov From CommodityHQ  Disclosure: No Positions.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.


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