Despite Selloff – Gold is Holding Support … For Now

Various media outlets listed many ‘convincing’ reasons to buy gold (a few examples of recent media blunders are listed in the article), but the gold market did exactly the opposite. Why did gold drop and where will it find support?

On June 8, Barron’s reported that the gold speculators are back and the Financial Times observed that gold bulls feel no need to hedge their gold position.

On June 11, MarketWatch ran an article titled: “Why mining stocks point to gains for gold prices”.

On June 14, gold prices (and gold ETFs) fell 45 points or 3.5%.

What happened?

Gold ran into a triple barrier.

That triple barrier is made up of:

  1. Technical resistance
  2. A seasonal weak spot
  3. Bullish sentiment extremes

The July 13 Profit Radar Report pointed out that: “Gold is making progress towards our up side target. We are considering a small short position.”

What was the up side target and how was it determined?

The up side target was 1,350, determined by combining technical analysis, seasonality and sentiment.

The June 1 Profit Radar Report published this price projection (chart below, yellow lines) and stated:

“On Friday gold slipped into our support zone at 1,255 – 1,230. Gold sentiment is quite bearish, so the immediate down side may be limited. The yellow projection shows one possible route to get to 1,350+/-.”

In terms of time, the projection was off by a couple of weeks, but gold reversed rather violently when it neared the outlined cluster of technical resistance levels around 1,350. Since prices did not completely touch the resistance cluster, there is still a chance of another bounce to ‘complete unfinished business.’

The SPDR Gold Shares ETF (NYSEArca: GLD) chart below offers an updated look at the gold market, with some interesting technical nuggets (chart published on July 15 by iSPYETF.com).

  • GLD found support right at the June 19 gap up open. I’m showing the GLD chart, because this gap is not visible on the futures chart. Support held and gold (and GLD) should bounce as long as this support holds.
  • GLD is trading heavy, as trading volume during the selloff was elevated. This cautions of further weakness eventually. A close below 124.30 would likely trigger another step down.

Based on the actions of commerical traders, which includes actual gold miners and other insiders, gold may see more selling.

Here is what commercial traders are doing and why this may be concerning:

Smart Money is Leaving Gold Just as the ‘Herd’ is Jumping in

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

GLD Gold ETF Analysis

So you want to own gold. When is the right time to buy? Should I use gold ETFs to establish (or add to) gold positions? Here is a quick look at a simple but effective strategy to spotting good entry levels for the two biggest gold ETFs.

Are you looking to buy and own gold? Do you want to buy gold at the lowest possible price?

If so, this article is for you.

Holding physical gold, like gold coins or gold bullion, in your hand is a special feeling and comes with certain advantages. If you like physical gold, you may appreciate some of gold’s unique properties:

Gold is very pliable: A single ounce of gold can be stretched into a 5-mile long thread or beaten out into a 300-square foot shoot.

Gold is non-toxic: You may find gold metal flakes (remember it’s pliable) in exotic foods or unusual Swiss liquor. I still have a bottle of GoldSchlager schnapps in my well stocked by under utilized bar.

Gold is considered protection against financial turmoil. What kind of protection? Good question. I guess unless you were looking to buy protection against making money, owning gold in recent years has been little more than an expensive placebo (more on when to buy gold below).

Regardless, many investors want gold to be part of their investment portfolio and feel that gold ETFs are a simple and superior vehicle for owning gold.

There are a number of gold and gold-related ETFs. The two biggest gold ETFs are the SPDR Gold Shares (NYSEArca: GLD) and iShares Gold Trust (NYSEArca: IAU).

Although IAU has a lower annual expense ratio (0.25%), GLD (with its 0.40% expense ratio) has more assets under management. Both ETFs track the price of gold well.

When to Buy Gold

As the gold chart below shows (the chart reflects actual gold prices, not gold ETF prices), gold prices can be quite volatile and buying or selling the precious yellow metal at the wrong time can cause a lot of headache (perhaps that’s where owning physical gold in the form of GoldSchlaeger schnapps helps).

In 2011 gold was caught up in an outright frenzy or bubble.

A couple of weeks before gold topped out in September 2011, I warned via the August 21 and August 24, 2011 edition of the Profit Radar Report:

“I don’t know how much higher gold will spike but I’m pretty sure it will melt down faster than its melting up. At some point investors will have to sell holdings to pay off debt or answer margin calls. The most profitable asset is sold first. Gold has been the best performing asset for a decade and a liquidity crunch could produce sellers en masse.”

Since the 2011 high, there have been some smaller opportunities to buy gold (green dots). All of those opportunities occurred when gold prices found support at the green trend line.

Overall though, buying gold in recent years has been a losing proposition.

I believe that an opportunity to buy gold will soon present itself.

The time to own gold will likely be when the price of gold falls to reach one of the horizontal green price support zones.

I will continue to share my thoughts and forecasts on gold prices and GLD via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report uses technical analysis, dozens of investor sentiment gauges, seasonal patterns and a healthy portion of common sense to spot low-risk, high probability trades (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

From Gold Glitter to Jitter: An Explanation for Gold’s Historic Decline

Safe haven what? Gold’s reputation as a safe haven got dinged nearly as much as investors’ gold holdings. After the biggest gold decline in 33 years, Wall Street is struggling to come up with explanations. Here’s one explanation for gold’s free-fall.

Wall Street is grappling for reasons to explain gold’s biggest decline since 1980. Here are some alleged reasons:

  • Federal Reserve may consider withdrawing QE sooner than expected
  • Investors selling gold to pay for taxes (April 15 tax dead line)
  • Easy come, easy go: Gold ETFs like the SPDR Gold Shares (GLD) made buying gold easier than ever. Now gold ETFs accelerate falling prices
  • Computer and high frequency trading
  • Panic selling, margin calls
  • Falling demand from China and India

The fundamental factors mentioned above ultimately affect supply and demand. The forces of supply and demand drive the price of gold. The price of gold is reflected on a chart.

By default a chart reveals more pertinent information than any piece of fundamental analysis. What did the gold chart say before the meltdown?

An Ironic Safety Net

Ironically, I’ve been looking for an opportunity to buy gold, but the gold chart refused to trigger a solid buy signal.

On February 21, gold prices fell as low as 1,554 and the Profit Radar Report doubted that this low was for real: “Longer lasting bottoms generally see a more visible bullish RSI divergence. I would like to see a lower low in a week or two to firm up the idea of a larger bottom.”

Gold prices rallied modestly thereafter, but formed a bearish triangle (purple lines on chart below) and the Profit Radar Report warned that: “A move/close below 1,596 may drive prices below 1,554.”

In hindsight we know that a target below 1,554 was a gross under estimation, but still it kept us out of gold.

The March 31, Profit Radar Report laid out all the key factors affecting gold:

Here’s the rub on gold: We should eventually (April/May) see a good buy signal. Ideally, gold will drop below 1,554 first. Well-defined and much publicized support is around 1,520. The media has been talking so much about support around 1,520 that we have to expect some sort of fake out move.

This could be a bottom above support or stop-running with a temporary drop below support (the risk is that a drop below support could trigger a quick avalanche of selling).

Either way, added volatility may make it tough to manage positions effectively with stop-loss orders. The bottom line is that we’ll be looking for a low-risk opportunity to go long eventually.

A move below 1,522 followed by a close back above would be a buy signal. A move below 1,554 with a positive RSI divergence could be a tentative buy signal.

Prices hit an air pocket and gold’s meltdown will enter the history books as the biggest decline since 1980. But what caused the free fall?

It may have been caused by any of the bullet points above. We’ll never know, but we do know that the chart continuously warned of lower prices.

The move below 1,596 suggested lower prices and the drop below 1,520 and 1,480 pointed to an acceleration of the sell off. This is a terrible situation for gold investors.

But anyone who stayed away from gold (or even went short at 1,596) will be able to pick up gold at deeply discounted prices, eventually.

My technicals suggest that gold hasn’t bottomed yet. There may be a bounce, but it will take a new low against support with a bullish price/RSI divergence or a move back above resistance to trigger a buy signal.

The Profit Radar Report provides continuous gold analysis along with key support/resistance levels and buy/sell triggers.