GLDTracker: Market Timing Gold (GLD)

GLDTracker CHART UPDATE:

UPDATE 6-29-2013: Gold bounced from the most recent low along with the gold miners.   The bounce could go quite far and skin the Bears, perhaps all the way up to the 50 day moving average, which is  the curved aqua line in the chart below now headed down to the first aqua support line below.  Be sure to use a mental stop loss.  And remember, if interest rates back up again, all bets are off most likely until inflation appears, which could be some time from now.

gld-gold-etf-market-timing-chart-2013-06-28-close

Gold bouncing from a 36% off sale for GLD and a 31% off sale from the gold futures high.

UPDATE for 6-18-2013 @ 12:05 p.m.: This is from slightly earlier today, but the chart is similar with a breach of the 6-11-2013 low, which will likely bring us to a retest or failure at the recent major low.  Here’s the chart:

gld-gold-etf-market-timing-chart-2013-06-18-1122am

Gold is now weaker, moving below the higher low set on 6-11-2013. Negative.

UPDATE 6-10-2013 @ 11:33 am: So far GLD has held 132.80 support on a test (the red line on the chart below), a positive in the move up from the 5-20-2013 low. 

It has a shot at 137.62, which is overhead resistance.  I think the challenge will be whether interest rates on the 10 Year Treasury move toward 2.4% or fall from here. 

We are now at 2.190% yield, and reversing the last breakout attempt on the yield chart, which was 2.211% on 5-31-2013.

6-08-13 Based on 6-07-2013 Close:

The GLD ETF has formed a based since mid-April. Since then it has tested that base once successfully in May. It then rallied in the formation of a market timing formation called an “ascending triangle” with the ascending edge of the triangle being the aqua line in the chart below.

On Friday, after the US stock market hit support and bounced (see main blog page), the GLD ETF broke the up trend line, and as it did so, I recommended exiting once again.

See the chart, and then I’ll have a final comment…

Yellow lines: Base and top of prior downward channel that was broken when gold fell dramatically.
Curved blue line: 50 day moving average
Aqua line sloped upward: up trend line
White line sloped downward: 200 day moving average

gld-gold-etf-market-timing-chart-2013-06-07-close

Gold ETF is having a hard time rallying.

The ETF may need to retest the prior low once again and there is no guarantee of course that the prior base will hold. In fact, the huge base formed in the first half of 2012 was broken and the result was a bungee jump by gold, from which it has yet to recover.

In studying gold’s behavior over the years, the most compelling issue seems to be the real interest rate, which is the real rate of return after inflation.  Inflation is higher than the government claims as they factor out gas and food as we all know, but it’s still not out of control, due to the slowing in the economy. How do I know? Because gold is not rallying!

Real interest rates need to be negative, not significantly positive at least for gold to rally strongly or at least hold its value!

The threat of higher Treasury prices due to less Fed intervention in the way of less QE (quantitative easing) without rampant inflation is scaring investors out of gold. Without the Fed creating negative real interest rates by force, the only other force that can do that is inflation.

Inflation is the likely next driver behind a further gold rally, but for that to happen, the Fed has to lose control of interest rates. To me, the danger zone is when interest rates rise above 2.41%. At least we need to pay close attention to how stocks and gold behave when that happens.

If the Fed allows rates to rise in the Treasury market to a point where real interest rates are comfortably positive, gold will be screwed until inflation appears.

Hedge funds have supposedly been re-accumulating gold lately, so maybe that part of demand is present. Although central banks have been diversifying into gold, they may be buying more equities and non-US dollar currencies rather than loading up on gold. Otherwise, I would have expected gold to maintain more of its prior gains.

Ultimately, the chart tells the truth! The equations that show up as the price of gold or the price of stocks are very complicated and are often discounted into the future, which is the purpose of market timing.

The idea is to follow the direction of the market rather than making assumptions that lead to losses and missed opportunities.

I’ve covered gold extensively in the past few issues of the blog. You can click those links to the right. See below for the link to my newsletter…

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