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Gold prices gained traction this week and should continue to move higher on the back of a weaker U.S dollar. On Wednesday’s Federal Reserve released the minutes of its April FOMC meeting, which revealed that voting members of the FOMC are more dovish than previously expected. The news immediately reduced expectations of an imminent rate hike after the FOMC completes its current bond purchase program which pushed U.S. benchmark interest rates down to 2-month lows.
Daily Chart
One of the best ways to invest in gold is the Spider Gold Trust Shares (NYSE:GLD). The outlook for the GLD is bullish as it closed on Thursday above both its 50-day and 200-day moving averages. Price action is poised to test medium term trend line resistance near $133, which is created by connecting the highs in August 2013 to the highs in March 2014. Support is now seen near prior resistance at both the 50-day moving average near $126.49 and the 200-day moving average near $125.20.
Head and Shoulder
The GLD has created a head and shoulder pattern which is generally considered a reversal pattern that forms at the bottom of a down trend. A close above the neckline of the head and shoulder pattern would generate a test of $155. This is calculated by subtracting the distance from the head to the neckline ($135 – $115 = $20) and adding that distance of $20 to the neckline ($135 + $20= $155).
Momentum
Momentum on GLD is robust as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD index moved from negative to positive territory which confirms the MACD crossover buy signal.
The relative strength index (RSI) which is a momentum oscillator that measures overbought and oversold levels is moving higher with price action, reflecting accelerating positive momentum while printing near 53, which is in the middle of the neutral range.
The Golden Cross
In late March of 2014 a “Golden Cross” occurs on the GLD (green arrow). This occurs when the 50-day moving average crosses above the 200-day moving average. This crossover is a bullish signal, and usually reveals that a long term trend is in place.
Weekly Chart
The weekly chart of the GLD shows an ETF that is testing resistance near the 50-week moving average at $126.65. Target resistance is similar to the daily chart near $133.00. The 200-week moving average comes in near $145, and former support now turned weekly resistance is seen near $155, which coincides with the take profit level forecasted by the head and shoulder pattern.
Trading the GLD
Aggressive investors looking to take advantage of the upward momentum in the GLD could purchase the ETF near the 50-day moving average, and use the upward sloping trend line on the daily chart that comes in near $124 as a level to place a stop. Investors could look to take profits near any target resitsance level which include $133, $145, and $155.
Investors who are more concervative could wait for the GLD to cross above the neckline level near $133 before risking capital. In this instance the take profit levels would be $145 and $155.
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