Stock Quotes in this Article: GLD

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This article was originally posed on Nov. 7, 2011.

NEW YORK (Scott's Investments) -- I had originally started this article last week but did not get around to publishing it. Below is the original article, and I have included an updated chart of SPDR Gold Shares (GLD) immediately below:

 

Below was my original article, written in the middle of last week.

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    Gold is positioning itself for another large move after consolidating for much of October. In August, the metal went parabolic and became overextended, trading well above its long-term trading channel, as shown in the weekly chart:

     

    GLD now resides near its 10-week moving average, a good intermediate trend indicator, and remains well above its 40 week moving average, which has also hugged the bottom of the channel since early 2009. The metal is still in a strong uptrend, making higher highs and higher lows. Until the upward channel is broken on the downside, the long-term outlook for gold remains strong.

    If we look at a daily chart, the picture is potentially shaping up well for bulls, with one resistance point lingering in the short-term. The 38.2% fibonacci retracement level from the end of June low to the highs in early September has yet to be cleared. It has been a level of resistance in recent days as GLD struggles to break $170.

    GLD closed above its 50 day moving average on Wednesday, and could be ready for a swift move to $173.30, which is the bottom of the gap from mid-September:

     

    As of this writing, the overnight equity futures, EUR/USD and gold futures are pointing to a lower open on Thursday. The U.S. dollar is rallying on European uncertainty as investors are seeking safer assets. European leaders announced they will withhold any additional aid for Greece before its referendum next month to determine whether it will stay in the Euro.

     

    A significant flight to the dollar could have an adverse impact on Gold, which has been inversely correlated in recent weeks. The 20 day correlation of GLD to PowerShares DB Bullish U.S Dollar (UUP) is at -.58, falling from .25 in late September. This correlation trend may not hold, but it is worth noting as we look for the next big move in GLD.

     

    Below is a chart with GLD and the US Dollar Index, exemplifying the recent inverse correlation:

     

     

    There are two potential scenarios that could unfold in the coming days. We may see GLD blow through resistance at $170 and eventually re-test the August and September highs, in a more controlled manner. A strong rally in the dollar could strengthen $170 as a resistance level, leading to a sell-off in GLD and a re-test of the $156 support level, which would coincide closely to the 200 day moving average as in continues to average higher from its $152 level:

     

    Scott's Investments focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies and macroeconomics. Follow Scott's Investments on Stocktwits Twitter.