Gold’s Break: Okay, It’s Happened

We finally got a break in gold prices on Tuesday. And now there’s plenty of punditry explaining why. British PM Theresa May was named a culprit by many observers for talking down sterling (read: talking up the Yankee dollar) as she laid out a Brexit timeline. A strong dollar means weak gold, according to common wisdom.

That’s all fine and good, but gold’s move was ripening beforehand. We looked at the warning signs in last week’s column.

When gold lost its $1,300 handle this week, it sent the SPDR Gold Shares Trust (NYSE Arca: GLD) toward the $119 level targeted in our September 19 column. But is this move the end of the sell-off? 

The answer may be found in the chart below.

See the green line? That’s the 100-week simple moving average (SMA) of GLD’s closing price. It’s been a reliable indicator of support and resistance levels when matched against crossovers in the ETF’s 13- and 34-week exponential moving averages (EMAs). Exponential moving averages weight recent market activity more heavily than earlier price action while a simple moving average assigns the same weight to each day’s price action.

If the $119 level is breached to the downside, you should look to the 100-week SMA as a level of significant support. As of Tuesday’s close, the 100-week SMA was $115. That translates to a spot gold price near $1,204. Keep in mind, though, that moving averages are just that – moving. If a GLD rebound is persistent, the SMA rises; a protracted sell-off reduces the SMA.

Now, about that September 19 column …

Back then, when spot gold was $1,313 or so, we looked at short gold exchange-traded products (ETPs) that traders or hedgers might use in anticipation of a metal selloff. Here’s how they would have shaped up after Tuesday’s break:

If you’re a long-term bull, the current sell-off may be a buying opportunity, especially if you believe gold has the strength to challenge the bear market trendline established by the August 2011 top and the October 2012 test.

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DisclosureBrad Zigler pens's Alternative Insights newsletter. Formerly, he headed up marketing and research for the Pacific Exchange's (now NYSE Arca) ...

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Kyle Soto 3 years ago Member's comment

"When gold lost its $1,300 handle this week, it sent the SPDR Gold Shares Trust (NYSE Arca: GLD) toward the $119 level targeted in our September 19 column."

Speaking of this fund in particular, why is there a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create this massive audit loophole? I haven't heard of a single good reason for the existence of this loophole so far. In addition to the audit loophole, GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. I've read about and verified a number of other red flags as well:

"I remember CNBC's Bob Pisani visiting GLD's vault in a well documented segment. GLD's administration arranged this visit to disprove everyone claiming that GLD's gold did not exist. However, Mr. Pisani held up a gold bar with the following serial number - ZJ6752. This serial number did not appear on the most recent bar list during that time period. Cheviot Asset Management’s Ned Naylor-Leyland later found out that this "GLD" bar actually belonged to ETF Securities."

"Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD's insurance? The prospectus vaguely states "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." When I asked about how much of the gold was insured, the representative proceeded to act as if he didn't know and said they were just the "marketing agent" for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors."

Duke Peters 3 years ago Member's comment

What's your agenda here?

Kyle Soto 3 years ago Member's comment

Is it not obvious?

Duke Peters 3 years ago Member's comment

Um, no. You keep spamming the site with the same comment about calling the GLD hotline. Why?