Gold – it is the yellow precious metal once used as a primary form of currency for thousands of years. It is durable, liquid and almost indestructible. Historically, investors have fled unstable markets in search of reliable sources of value and stability, which can generally be achieved by investing in this precious metal. For those who want cost efficient access to the gold market, investing in the SPDR Gold Trust Exchange Traded Fund (NYSE: GLD) is one of the easiest means of doing so. It is the world’s largest gold-backed ETF that offers risk takers a chance to profit by establishing a position in an investment vehicle that has somewhat of an inverse relationship to the equity markets.
My role here today is to analyze the recent movements of GLD and offer my own insights as to what I believe will happen next with regards to price activity. In the chart below, I’ve drawn a thick horizontal line.
This represents major resistance. The psychological barrier near $100 should come as no surprise seeing that investors gravitate to price figures ending in either “0” or “5”. At any rate, this wall has been tested quite a few times. Instead of tripping over themselves in full retreat, the bulls gave ground to affirm the previous breakout near $70 and bounced back to test $100/share once more.
The bullish formation that materialized as a result of this back and forth activity is known as a “reverse or inverted head and shoulders” technical pattern. I’ve marked both shoulders along with the head to help visualize this concept. For a quick reference on these setups you can click here. Technical analysis will not guarantee that the end result is bullish, but merely points to the fact that historically, this particular formation should be watched closely for a breakout to the upside.
Where will the breakout occur?
Remember when I said something about a “wall” or “major resistance” currently existing near $100; well that’s where we’ll focus our energies. I fully expect a re-test of the $100/share mark. If GLD breaks out to the upside on above average volume, the index could tack on $30, or even $45 if we’re lucky, eventually carrying the price of this index to somewhere between $130-$145/share. If there isn’t a breakout and the index succumbs to the pressures of previous resistance, then all bets are off until the bulls step back in and attempt to crack the upper ceiling once again.
Now, since this is a multi-year weekly chart, we are not likely to see any major developments for a few months. But I can assure you that there is money to be made if you keep this ETF on your radar during the summer. We’ll revisit this when it’s time to the pull the trigger.