The SPDR Gold Trust (GLD), which tracks the spot price of gold, started off the third quarter on a down note, falling more than 2.5% last week to close at its lowest levels since May. But the bigger technical story here is the breakdown on its weekly chart: It happened at the beginning of the quarter, which could signal a weak second half of 2017 for the precious metal.
The first technical alarm was a reversal in the Moving Average Convergence Divergence (MACD) which turned negative on the weekly chart. It’s a pretty reliable indicator of weakness to come in the coming months, and until the MACD turns positive, expect GLD to get pushed lower.
The second technical alarm was a breakdown below support from earlier this year. Looking at the weekly chart below, we see five touches and holds of the uptrend line. Not only did last week close below this line, but there was a strong breaking down gap below this level. Whether to the upside or downside, a breakaway (in the case of an upside breakout) or a breaking down gap (in this case, a downside breakdown) is usually an indication of a new trend.
Further confirmation can be seen in the price action of silver, which broke down to new lows for the year last week. The two commodities often trade in tandem, so it’s useful to look at both when trying to determine market trend.
Now that GLD has broken down, a few moves are possible. The first would be a bounce and a retest of the breakdown level, followed by a failure at this level (which is now resistance). This would confirm the breakdown and give a good risk/reward short opportunity.
The next possibility is a move down to $108 throughout the summer, where GLD might be able to form a double bottom. There is no major support until $112, which represents the uptrend line from 2016. If GLD bounces there, it might be forming a longer-term symmetrical triangle pattern that will be resolved at the end of the year. How the ETF reacts at $112 will be very telling as to whether it is forming this longer-term symmetrical pattern or if it is heading down to $108 to retest the December 2016 low.
The Bottom Line
Given the recent bearish breakdown in GLD, expected the ETF to trade lower and test support levels at the 112 and possibly the 108 levels. If and when GLD tests $112, it will be an important test in a potential longer-term symmetrical triangle pattern. Should this level hold, GLD looks to be heading into a tight range within the confines of the symmetrical triangle support/resistance lines into year-end.