Yellow metal’s mixed picture

SPDR Gold Shares (GLD)What goes up, must come down and so it was that after 12 consecutive years of strong returns, gold bullion went into a tailspin in 2013. By April, after dropping more than 20% from its August 2011 high of $1891.90, the yellow metal officially entered bear market territory. Prices continued to weaken through the spring months with gold eventually bottoming late-June at a 34-month low of $1,179.40 an ounce. Headlines throughout the first half of the year declared that the gold bubble had finally burst.

Funny how in late-August, when geopolitical tensions in Syria propelled gold bullion back into bull market territory, you could hear the sound of crickets coming from the financial media. Sure, the rally may end up being nothing more than a dead cat bounce, but the so-called “smart money” (hedge funds and money managers) has accumulated the largest gold futures and options position since January, according to the US Commodity Futures Trading Commission.

Looking at the one-year chart of SPDR Gold Shares (GLD), my proxy for bullion, you can see gold gaining traction in July, pulling back, then resuming its uptrend in August while forming a higher-high, higher-low pattern. My intermediate-trend strategy for trading the yellow metal triggered a buy signal on July 24 when GLD closed above its 50-day average – a move confirmed by my momentum indicator. (The July buy signal followed a quick, unprofitable round-trip between 1/23/13 and 2/1/13.)

Going forward, gold faces a serious headwind from a technical perspective — the bold blue multi-year support line is now resistance. GLD’s 200-day average also has the potential to behave as a barrier to higher prices. But in the meantime, seasonality is on the metal’s side: since 1969 September has been the single best performing month for gold with an average 2.3% return. I’m enjoying the ride, but keeping a very close eye on the exit door.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. 


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