The bulls are at it again this week as stimulus hopes have taken center stage at home and in the eurozone. Investors on Wall Street continue to digest corporate earnings results, which for the most part are coming in better-than-expected; however, looming FOMC minutes and Friday’s monthly employment report will surely steal the spotlight this week. Overseas, investors are anticipating for the European Central Bank to cut rates down to 0.5% from 0.75%, potentially paving the way higher for gold prices as inflation fears return [for more market news and analysis subscribe to our free newsletter].
Consider the one-year daily performance chart for the well-known SPDR Gold Trust (GLD) below. This ETF endured a nasty sell-off spanning from 4/12 to 4/15 after massive profit taking pressures swooped in and inevitably triggered countless stop-loss orders along the way; note that the blue line in the chart signifies GLD’s historic support around $150 a share, and as you can see, the downside damage was only exaggerated as prices dipped below this closely watched support level.
GLD’s rebound over the last two weeks has been encouraging for precious metals investors, but the rally may soon run out of steam when considering the prevailing trading volumes; notice how the big down days were accompanied by above-average trading volumes, while the recent rebound has seen declining volumes, perhaps hinting at a potential trend reversal in the near future.
The upcoming FOMC minutes at home and the expected European Central Bank rate cut will serve as fundamental catalysts for GLD as investors will surely look to re-position their portfolios following any policy changes. Any hints of continued easing and “loose money” policies should bode well for gold as inflation fears return. On the other hand, any mentions of improving economic conditions could hinder GLD’s performance on the day, as investors jump ship to riskier assets [see 5 Commodity Trading Mistakes You Could Be Making].
From a technical perspective, GLD has room to run until it nears the $150 level, where it will likely face stiff resistance; in terms of downside, this ETF has support at $130 a share, while any move lower will likely welcome accelerating selling pressures. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Disclosure: No positions at time of writing