The price of both gold and the the Spider Gold Trust (ticker GLD) have bounced hard off their respective 200-day averages. This is while the volume has picked up. Looking at the chart, there could be a little left in the run, around $20 be to exact. However, I am thinking the recent run is the market building energy for another downward move in the price of gold and the GLD.
This thesis is based mainly on the volume characteristics in the recent bounce. Although stronger than what has been a daily occurrence in September and October, it still does not come close to the volume seen in the February 29th sell off. On this day, approximately 300 thousand contracts in gold futures changed hands while more than 44 million shares in the GLD traded. This compares to a contract volume of approximately 275 thousand in gold and 16 million shares traded on the GLD on the highest volume day in the recent run. This is not enough to push the metal through the resistance levels.
This is occurring while the other technical measures suggest some underlying weakness building in both gold and the GLD. The following are the charts for gold and the GLD.
What is is pressing on me is that the MACD in both gold and the GLD remains negative and has not pushed above the zero line. Of course, this could all be a matter of time as new data comes in. However, the cash flow and accumulation/distribution (A/D) lines are not confirming the upswing. The A/D line is only marginally up from the recent bottom and has not broken the downtrend established earlier in the year. Additionally, the money flow statistics (Chaikin Money Flow of CMF) is negative for both gold and the GLD. This is suggesting to me that the rally does not have much support and is likely just a noise related both the election and a counter-trend rally with a broader decline.
This all said, I remain a long-term bull on gold and think that the continued actions by Central Banks around the world will make precious metals more attractive over time. It is all a matter of timing your purchase.
This thesis is based mainly on the volume characteristics in the recent bounce. Although stronger than what has been a daily occurrence in September and October, it still does not come close to the volume seen in the February 29th sell off. On this day, approximately 300 thousand contracts in gold futures changed hands while more than 44 million shares in the GLD traded. This compares to a contract volume of approximately 275 thousand in gold and 16 million shares traded on the GLD on the highest volume day in the recent run. This is not enough to push the metal through the resistance levels.
This is occurring while the other technical measures suggest some underlying weakness building in both gold and the GLD. The following are the charts for gold and the GLD.
This all said, I remain a long-term bull on gold and think that the continued actions by Central Banks around the world will make precious metals more attractive over time. It is all a matter of timing your purchase.
I appreciate your analysis. I am new to gold investing. The more information the better, especially from someone who knows how to make sense of it. Thanks.
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