Gold broke out to new highs last week and while I typically focus just on (NYSE:GLD), the SPDR Gold Trust ETF, Adam Hewison gives investors four different investment vehicles in this video for making a gold trade. His target on spot gold is $1300-$1310/oz and thinks we will see new highs.
When looking at my favorite gold proxy, (NYSE:GLD), I’m not so sure we are going to skyrocket next week. The intraday pullback on Friday and waning momentum indicators are an indication that long investors may be best suited waiting for a better entry point. While I normally am a fan of price momentum and all-time highs, this is one scenario where I am not eager to jump on board yet.
Taking a look at two charts below, you will see the indicators to which I am referring. For an explanation of how to use ADX, see one of my previous posts. ADX is not yet a level which would indicate a strong trend (typically defined as an ADX reading above 20). In addition, MACD and full stochastics are below recent highs, despite price being at a new high. This is referred to as a divergence and can indicate that price momentum is fading.
I normally say that “price pays”, and in the case of GLD “price”–at all-time highs–is saying strong momentum. However, diving a little deeper into indicators they are saying that a strong trend does not (yet) exist. Thus, I am not comfortable purchasing GLD (yet). The same holds true for spot gold, gold futures, and the gold ETN (NYSE:DGP) all of which Hewison discusses in his video.