Gold is back on the grid

Well, the conversation on gold comes back into focus. In previous months it appeared gold might be cooling off and setting up for a correction, but here we are hitting new highs yet again. Although I am personally getting a little skeptical about the prospects for gold continuing higher, my opinion certainly doesn’t mean that the price of gold can’t go higher. That’s the great thing about chart analysis: Ultimately, the chart tells you the truth and what you need to know.

One of the common ways to trade gold is by trading the ETF GLD. Although there are other ways such as by trading the stocks of gold mining companies or any other gold linked ETF, the GLD is the main trading vehicle for gold itself. I use the GLD to analyze what gold is, or is not doing.

Below is a chart of the GLD with some of my added details:

You will notice that the GLD had created a decent resistance in the $123 area over the last 3 months (This resistance is highlighted in blue on the chart).  Yesterday gold hit a new all time high, which corresponded with the GLD making a significant break above its $123 resistance. On breakouts, it is preferable to have a “pop” in volume to confirm that the breakout was made with conviction.  If you look at the bottom right of my chart, you will see where I have denoted a large increase in volume on yesterday’s breakout (green).  So, there seems to have been definite conviction in the breakout.

The Tale of the Tape: The gold ETFD GLD, and gold itself, broke to new highs yesterday on significant volume.  This appears to be telling us that gold is starting a new leg higher. Buying the GLD would provide a great long position, with a stop below the $123 level. The GLD is expensive, so looking at gold related stocks such as BVN, GG, AU and SLW (silver) would also be great potential plays.

Waiting for the most opportune times that I have outlined above could provide you with the highest probability trading points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT