David Becker: Gold prices gained traction this week and should continue to move higher on the back of a weaker U.S dollar. On Wednesday’s Federal Reserve released the minutes of its April FOMC meeting, which revealed that voting members of the FOMC are more dovish than previously expected. The news immediately reduced expectations of an imminent rate hike after the FOMC completes its current bond purchase program which pushed U.S. benchmark interest rates down to 2-month lows.
One of the best ways to invest in gold is the Spider Gold Trust Shares (NYSEARCA:GLD). The outlook for the GLD is bullish as it closed on Thursday above both its 50-day and 200-day moving averages. Price action is poised to test medium term trend line resistance near $133, which is created by connecting the highs in August 2013 to the highs in March 2014. Support is now seen near prior resistance at both the 50-day moving average near $126.49 and the 200-day moving average near $125.20.
Head and Shoulder
The GLD has created a head and shoulder pattern which is generally considered a reversal pattern that forms at the bottom of a down trend. A close above the neckline of the head and shoulder pattern would generate a test of $155. This is calculated by subtracting the distance from the head to the neckline ($135 – $115 = $20) and adding that distance of $20 to the neckline ($135 + $20= $155).
Momentum on GLD is robust as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD index moved from negative to positive territory which confirms the MACD crossover buy signal.
The relative strength index (RSI) which is a momentum oscillator that measures overbought and oversold levels is moving higher with price action, reflecting accelerating positive momentum while printing near 53, which is in the middle of the neutral range.