Gold has been on a tear this year, but the yellow metal is presently encountering potential resistance stemming from the 2011 highs.
Following more weak U.S. economic data this morning, the U.S. Dollar sold off and, as it often does in response, the price of gold spiked higher. This is nothing new for the metal as it has been on an almost Michael Phelps-like pace, rallying some 30% this year. However, no matter how strong the trend, there will always be some hurdles to overcome. Presently, gold may be facing just such a hurdle.
Specifically, we are looking at the popular SPDR Gold Shares ETN, ticker GLD. After jumping well over a percent to start the day, gains in the GLD have steadily leaked until, at the present time, the fund has turned negative. Why the reversal? The dollar is off of its lows, but still down on the day so it cannot take all of the blame.
The truth, as we see it, is that sometimes prices just run into a technical obstacle on the chart that serves as resistance. It doesn’t have to be more complicated than that. In this instance, the obstacle we find is the Down trendline (on a linear scale) starting at the 2011 highs and connecting the October 2012 highs. Extending that trendline to the present places it at approximately 130. Today’s high before the pullback was 129.26.
The bad news is that this trendline should serve as stiff resistance for the time being, absent a Simone Biles-like vault over the line. The good news is that the GLD has already twice tested the trendline, in early July and early August. These tests should have served to weaken the trendline somewhat. And the resilience on the part of the metal in avoiding a deeper pullback so far suggests that an eventual vault over the trendline should be forthcoming at some point.
When that happens (assuming it does), we don’t know. However, this post-2011 Down trendline looks to be the line to focus on at the moment in determining the direction of the price of gold.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.