From a fundamental perspective, relatively low interest rates across the globe and a heightened risk of geopolitical trade war have acted as catalysts for investors to send prices of gold higher. Over in the world of technical trading, the bullish price action has also caught the attention of active traders because the price of gold has moved out of a horizontal channel pattern that has dominated the momentum of the commodity for most of 2019.
As both camps continue to fuel the upward momentum, the gains will likely start to capture the attention of the media outlets, which in turn will cause new investors to take another look at gold and spark an even strong move higher. In this article, we'll take a look at several key gold charts and try to determine how traders will position themselves over the coming weeks or months to take advantage of the move.
SPDR Gold Shares (GLD)
The most popular exchange-traded product that is used by active traders for gaining exposure to physical gold is the SPDR Gold Shares (GLD). As you can see from the chart, the price has recently moved beyond the resistance of a dominant channel pattern. Since the breakout, the price has started to form a tighter version of the pattern, which many will use for determining the placement of their buy and stop orders. The step-like pattern will be used by active traders to suggest that underlying fundamentals are shifting and that the bulls are starting to increase their conviction on buying into pullbacks. Many long-term traders will look to buy on a move above the nearby resistance around $135 and will likely protect their position by placing stop-loss orders below $130 or $127.80, depending on risk tolerance.
VanEck Vectors Gold Miners ETF (GDX)
The rising price of gold isn't only good for investors of physical gold – it is also a big win for those companies that mine and refine the metal. Taking a look at the chart of the VanEck Vectors Gold Miners ETF (GDX), you can see that the break beyond the dotted resistance in June was clear confirmation for traders that pointed to higher prices. The short-term period of consolidation is quite normal after a sharp move higher, and the recent surge above the short-term channel (shown by the blue circle) suggests that the bulls are in clear control of the momentum. Based on the chart, there are no major levels of resistance standing in the way of a significant move higher from here.
Barrick Gold Corporation (GOLD)
There are few gold mining companies in the world today that have the scale and depth of operations as Barrick Gold Corporation (GOLD). Taking a look at the chart, you can see that the price has been trading within a channel pattern near its 200-day moving average since October of 2018. The prolonged period of consolidation suggested that traders were unsure of the long-term direction, but given the break higher in June, the story has changed, and prices look poised to continue their run higher. Based on the chart, the bulls will likely set their stop-losses below $16 or $14.28, depending on risk tolerance and investment horizon.
The Bottom Line
Gold prices have started to trend higher in recent months, and the move will likely start to capture the attention of the media as well as investors who follow both schools of technical and fundamental analysis. Stop-losses will likely be used to protect against a sudden shift in sentiment, and based on the breakouts that were discussed above, it looks as though the bulls will remain in control of the momentum for quite some time.
At the time of writing Casey Murphy did not own a position in any of the assets mentioned.