How to Trade Gold Now

Gold, as represented by the popular SPDR Gold Trust (ETF) (NYSEARCA:GLD), fell about 1.8% last week. That doesn’t sound like a lot in percentage terms, but it was a big deal through the lens of technical analysis. The GLD ETF found resistance at a critical confluence resistance area, which may lead to further weakness in the near future.

When it comes to gold, the one constant I have found during my nearly 20-year career in the financial markets is that more so than in the stock market, investors are either loudly bearish or uber bullish (gold bugs) on the yellow metal.

In other words, few investors and traders are open-minded enough to respect both a rally or selloff in gold prices over any given timeframe.

I have yet to understand why investors tend to be so opinionated on gold, but I do know that this actually creates opportunity for those who do have an open mind.

When I last discussed gold on Dec. 20, 2016, I offered that the GLD looked like it was nearing a better rally period from both momentum and price action perspectives.

By Dec. 29, this gold ETF had pushed back above the $110 area, which I highlighted as a buy signal. By January 17th my first price target at $115 was reached, followed by my second price target at $120 on Feb. 27.

Now that both price targets have been reached, I sense that a near- to intermediate-term pullback in the yellow metal is near.

GLD ETF Charts
On the multiyear weekly chart, we see that last week, the GLD bumped into diagonal resistance from the 2016 highs, which also lined up with the yellow 50-week simple moving average.

From last week’s highs to its lows, the GLD ETF dropped by about 1.8%.

Although the GLD closed off its weekly lows, it’s now at risk of further consolidation (if not outright weakness) in the coming days or weeks before a possible next leg higher stands a better chance.

On the daily chart, we see that last week’s highs not only lined up with the aforementioned diagonal resistance as well as the 200-day simple moving average (red, same as the yellow 50-week moving average from above), but that it also coincided with a near exact 50% retracement of the entire selloff from the July 2016 highs down to the December 2016 lows.

Last week’s price action also broke the 2017 uptrend in the GLD. Next downside targets now become $114, followed by potentially as much as a full retracement of the 2017 year-to-date rally around $108.

Active investors and traders could consider playing the short side in GLD upon a daily close below $117. Any bullish reversal could act as a stop-loss signal.

— Serge Berger

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Source: Investor Place