Tuesday February 7, 2012 ETF Chart To Watch: SPDR Gold Trust (GLD, IAU, SGOL, AGOL, GDXJ)

Stoyan Bojinov: Stocks drifted lower to start the week as resurfacing Euro zone debt woes brought back the bears. Domestic equity indexes retreated into red territory after European leaders put pressure on Greek lawmakers to meet and accept the conditions of the proposed $171 billion bailout. Investors were spooked as worries intensified after Greek leaders failed to reach a unified agreement, further delaying the ongoing debt drama. Uncertainty in equity markets overseas paved the way higher for the U.S. dollar in the currency markets; likewise, gold prices encountered selling pressures and settled near $1,720 an ounce for the day [see ETF Insider: Will Euro Woes Rain On The Bull’s Parade?].

With no major economic data releases on the home front this week, investors will likely turn their attention back to developments in the debt burdened currency bloc. Gold prices have been quietly inching higher alongside equity markets these past few weeks, however, with the Euro zone back in focus, the precious metal may soon face unexpected headwinds [see Seven Reasons To Hate Gold As An Investment].

Chart Analysis

Although economic reports have been overwhelmingly better-than-expected, gold prices have been creeping higher amidst the euphoria on Wall Street; SPDR Gold Trust (NYSEArca:GLD) is up 10% year-to-date, versus broad equity markets, as represented by SPY, which are up only 7%. Despite gold’s impressive bull run to start the new year, the precious metal appears to be due for a pullback from a technical perspective. Since hitting a recent low at $148.27 a share on 12/29/2011, GLD has gained about 20 points or so, however, trading volumes have been less than impressive [see Are Gold ETFs The Best Defense Against Euro Drama?]. In fact, notice how since jumping higher on 1/25/2012, GLD has gone onto appreciate while trading volumes steadily decreased in the following days.

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Another piece of bearish evidence is the simple observation that GLD fell on relatively high trading volumes last Friday, perhaps suggesting that bullish momentum has started to cool off.


With Euro zone headlines back in focus, gold could become the center of attention, for good or bad, depending on investors’ sentiment. Pessimistic developments will likely pave the way higher for the U.S. dollar, which would in turn create headwinds for gold prices. The precious metal could loose its safe haven appeal if developments overseas spark a broad-based wave of risk aversion across financial markets. In terms of downside, GLD has considerable support near $160 a share. On the other hand, if GLD resumes its upward trek, the next likely area of resistance comes in just below the $175 level [see GLD-Free Gold Bug ETFdb Portfolio ]. 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),  ETFS Physical Swiss Gold Shares (NYSEArca:SGOL), SPDR Gold Trust (NYSEArca:GLD), ETFs Asian Gold Trust (NYSEArca:AGOL), Market Vectors Junior Miners ETF (NYSEArca:GDXJ)]

Written By Stoyan Bojinov From ETF Database Disclosure: No Positions

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