Gold prices have stabilized in recent weeks, moving within a range between the May low and June high price. But as gold nears a couple key support levels, a breakout is becoming a possibility. Gold-related ETFs provide a way for investors to participate in the movement of gold prices - both directly and indirectly. Four actively traded gold-related ETFs provide slightly different trade set-ups, but all are affected by the movement of gold prices. With the potential for a big move to ensue following the breakout, now is a good time to watching gold-related ETFs.
SEE: The Anatomy Of Trading Breakouts
The SPDR Gold Shares (ARCA:GLD) ETF is one of the most popular gold ETFs. The ETF seeks to replicate, net of expenses, the price movement of gold. After hitting an all-time high at $185.85 on September 6, 2011 the ETF has been in a downtrend. On December 29, the ETF put in a 52-week low at $148.27, a level that has not been seen since. This is primary support, which if broken, would break a large triangle formation signaling a further slide in the price of the ETF. The long-term targets for such a move are $123 and $111.50. Before that occurs, though, there is support at $150 and also $148.60. On the other hand, a rise back above the June 6 intra-day high at $159.20 could spark some buying interest, propelling the ETF into trendline resistance currently at $165.
iShares Gold Trust (ARCA:IAU) ETF is another actively traded gold ETF that is very similar to the SPDR Gold Trust in how it trades. One of the main differences is the price. The iShares Gold Trust is roughly one-tenth of the price of the SPDR Gold Trust. This makes it attractive to traders looking for a less capital-intensive way to get involved in the gold market. The technical outlook for this ETF is the same as the SPDR Gold Trust. The 52-week low of $14.87, created at the end of 2011, is the main price level to watch. A breach signals a further decline toward the long-term targets of $12.30 and $11.50. Minor support is between $15.05 and $14.90. A rise above the June 6 intra-day high at $15.98 could result in a test of the downward sloping trendline, currently intersecting just above $16.50.
Market Vectors Gold Miners (ARCA:GDX) ETF is indirectly affected by the price of the gold. The ETF tries to replicate, before fees and expenses, the performance of the NYSE Gold Miners Index. Therefore, the fund mostly invests in the common stock of gold miners. The ETF has been hit much harder than the iShares or SPDR Gold Trusts. Having put in an all-time high at $66.98 in early September, the ETF has been in a steady downtrend - creating lower price lows and lower price highs. Minor support is very close by at $42.60. A drop below that level signals a test of the May 16 low at $39.08, and a continuation of the downtrend if surpassed. If the ETF manages to find a bottom before reaching $39.08, and then rallies above the June 6 high at $48.72, the downtrend is drawn into question. The downward sloping trendline currently intersects at $50.50 and is a potential future resistance level.
SEE: Technical Analysis: Support And Resistance
The Market Vectors Junior Gold Miners (ARCA:GDXJ) ETF is another ETF that is indirectly affected by gold. This ETF tries to replicate, before fees and expenses, the Market Vector Junior Miners Index. This means the fund invests mostly in the common stock of small- to medium-capitalization gold mining companies. This ETF peaked at $39.50 in July, 2011, signaling a bearish divergence with the ETFs discussed prior. Ultimately, gold prices did top within a couple months of that peak, but this ETF was hit the hardest. The Market Vectors Junior Gold Miners ETF has lost more than 50% of its value since that peak. Currently, very close to minor support at $18, a breach is likely to result in further declines into the 52-week low at $17.37, and potentially further. If support is found before $17.37, and a rally is waged, a pop above the June 6 high at $22.18 warns the downtrend may be over. A downward sloping trendline is currently providing additional resistance at $22.50.
The Bottom Line
While each ETF represents a different trading opportunity, all of these gold-related ETFs are close to support. For the gold miner and junior gold miner ETFs, a break below support means a continuation of the downtrend. Gold itself, represented by the SPDR and iShares Gold Trust ETFs, is hovering above support of a large triangle pattern. While the price is close to support, the downside breakout cannot be assumed. Whether the breakout is to the upside or downside, the ensuing move is likely to be significant - based on the profit targets, a 25% move from current levels is quite possible.
SEE: Triangles: A Short Study In Continuation Patterns
Charts courtesy of stockcharts.com
At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.