How Recent Gold Activity Is Confusing Traders

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Mike Hammer | September 25, 2019 9:47am NYSE:GLD

NYSE:GLD | News, Ratings, and Charts

Gold – in case you haven’t been paying attention lately – has been a bit confusing. One example: There’s supposed to be a fundamental relationship between gold price and local currency. When the local currency goes down the price of gold is supposed to go up. So simple even a caveman can understand it.  Well, lately not so much.

gold activity chart

This is the chart for unleveraged ETF GLD over the past 3 months.  In the early part of the chart things basically obey the script.  In those cases, the market acts “normally” – if you can count the fits and sputterings of a spoiled teenager normal.  When the USD goes down (using the market proxy UUP in the green line for the US Dollar) gold rises.  Simple enough.

But lately, there have been increasing numbers of days when the relationship seems broken. Such as the two days circled to the left of the chart. On the first day, the USD goes down, and gold goes – down.  Oops.

Maybe it’s just trader bias to the downside? We’ve seen that before…

Then in the second example, USD goes up and gold also goes up.  Another broken relationship?  Or maybe just strained?

So you can get your bearings we’ve drawn a red line across roughly-1500 in international gold prices. No doubt gold is using that as a base level at the moment.

Another recent thought is that investors are favoring equities.  So we drew in the Dow Jones Industrial Average daily closing price as a green line. You can track across the chart yourself, looking to see if that’s been a good indicator lately. If it is, should be roughly the same as the USD – gold acting inverse to DJIA.  Well, it does, most of the time – but disconcertingly it’s often wrong on big-move days.

The problem with all this is that it’s backward-looking, so difficult to use for trading… we’ll keep you posted.


The Gold Enthusiast

DISCLAIMER: The author has no position in any mentioned security.  The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on parts of the NUGT and JNUG positions. The author may initiate a covered call position in JNUG in the next 24 hours if market conditions warrant.

The SPDR Gold Shares (GLD) fell $0.49 (-0.34%) in premarket trading Wednesday. Year-to-date, GLD has gained 16.49%, versus a 11.35% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.

About the Author: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.

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