Heightening volatility has triggered renewed interest in precious metals. As the media has widely reported, gold has rebounded from recent lows, and many market participants are using the recent momentum as a sign of a move even higher. In the article below, we’ll take a look at several major resistance levels that could be standing in the way of the gold bug’s summer plans of pushing prices higher. (For related reading, see: What Drives The Price of Gold?)
SPDR Gold Shares
One of the most popular exchange-traded products used by active traders for gaining exposure to spot gold is the SPDR Gold Shares (GLD). In case you aren’t familiar, GLD is the largest physically backed gold ETF on the market, and it currently holds an impressive 26.8 million ounces. Taking a look at the chart below, you can see that the price is in the process of forming a double-top pattern near the 200-day moving average. The appearance of the bearish chart pattern at a major zone of resistance suggests that the bears are trying to take control and that it will likely require a major shift in fundamentals to reverse the selling pressure. Based on this chart, bearish traders will watch for the price to move toward the recent low and then bet on a breakdown if the price falls below $114.02. (For more, see: Analyzing Chart Patterns: Double Top and Double Bottom).
VanEck Vectors Gold Miners ETF
When a clearly defined chart pattern forms on the price of gold, it is common that both senior and junior miners lead the move since their revenues are closely tied to the underlying price of the metal. One common ETF used to track the performance of the gold mining sector is the VanEck Vectors Gold Miners ETF (GDX). As you can see from the chart, the price failed to overcome the resistance of the 200-day moving average, and it has recently started to struggle against the 50-day moving average as evident by the sideways price action over the past couple of weeks. The failed move above the mentioned resistance will likely be used as confirmation that the group is set to move lower and could also confirm likely weakness in gold heading into the summer doldrums. (For more, see: 4 ETFs For Trading Gold's Falling Prices).
VanEck Vectors Junior Gold Miners ETF
When it comes to trading gold miners another interesting fund to watch is the VanEck Vectors Junior Gold Miners ETF (GDXJ). As the name suggests, this fund is used to track junior gold miners or those that conduct business in the relatively early stages of exploration. The long-term fate of many of the companies held within the fund is hinged to the price of gold. If the scenario of a falling gold price, which was discussed above comes to fruition, then this group is a candidate for a significant move lower. You’ll notice that both the 50-day and 200-day moving averages have also acted as strong levels of resistance and will likely continue to do so in the months ahead. From a technical analysis standpoint, active traders will continue to hold a bearish outlook on the group until the price can close back above the resistance for several consecutive trading sessions. (For more, see: Junior Gold Miners Ready to Shake Out Weak Hands).
The Bottom Line
While many investors are starting to pay attention to the price of gold given the rising attention in the media, the charts are suggesting that the next move could actually be lower. As discussed above, the nearby resistance of the 50-day and 200-day moving averages on charts such as GLD, GDX, and GDXJ suggest that the bulls have plenty of work to do if they have a hope in reversing the trend. Active traders will likely remain bearish until the prices can close above the resistance for several consecutive trading sessions. (For more, see: 5 Charts That Suggest Gold Stocks Are Headed Lower).
At the time of writing, Casey Murphy did not own any of the funds mentioned.