Major equity indexes appear to have resumed their uptrend following a brief pullback in late June. U.S. stocks in particular have been charging higher since investors returned from the Independence Day Holiday weekend on hopes that the Federal Reserve will not prematurely scale back on stimulus efforts, which was the original concern that sparked the broad market sell-off on May 22nd [for more commodity futures news and analysis subscribe to our free newsletter].
With all eyes still on the Fed, investors and traders alike are waiting to see the latest FOMC minutes slated to come out later today, in hopes of deciphering any hints that may point to a potential change in policy in the foreseeable future. As such, the well-known SPDR Gold Trust (GLD) has made its way onto our radar screen ahead of the FOMC report as the precious yellow metal flirts with a key support level.
Chart Analysis
Consider GLD’s 10-year weekly chart below. It’s important to have a long-term perspective when analyzing gold at the moment since the recent sell-off that sank the yellow metal below $1,500 an ounce has managed to break all sorts of support, bringing in focus a price level not seen since 2010. Notice how GLD has managed to fall to $120 a share following several failed attempts at stabilizing above the $140 level; GLD previously rebounded off this same support level (blue line) back in mid-2010, after which it proceeded to charge higher to its all-time peak at $185.85 a share seen in late 2011.
Click to Enlarge
While it is certainly encouraging to see GLD hold around a key support level, investors should also recognize the inherent downside risk if another round of selling swoops over the yellow metal; notice that the next support level for GLD lies around $100 a share (red line), which acted as a resistance level for the ETF all throughout 2008 and the majority of 2009 [see 5 Commodity Trading Mistakes You Could Be Making].
Outlook
Despite the attractive upside potential, we advise conservative investors to wait for GLD to establish more definitive support above $120 a share before jumping in long, seeing as how another round of selling can easily trigger countless stop-losses, potentially sinking GLD down to the next support level around the $100 mark. In terms of upside, GLD will likely face stiff selling pressures as it nears $130 a share, which acted as a support level until it was breached on 6/20/2013. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing
