Chart Patterns Suggest Gold Prices Are Headed Higher

Economic and political volatility has spiked in early 2021, and many investors are now looking for asset classes that could act as potential hedges over the weeks and months ahead. One segment of the financial markets that could capture the attention of investors is precious metals such as gold. Based on the patterns that we will discuss below, the proximity to influential levels of support makes an interesting case for physical gold as well as those companies that focus on gold mining.

Key Takeaways

  • Spot gold prices are trading near major levels of support. Active traders could turn to exchange-traded funds (ETFs) such as the SPDR Gold Shares (GLD) in anticipation of a bounce higher.
  • Small-cap gold mining companies such as Yamana Gold Inc. (AUY) are strongly correlated to shifts in gold prices, which suggests that this group could be of interest over the days and weeks ahead.

The SPDR Gold Shares (GLD)

Investors interested in gaining exposure to gold often turn to exchange-traded products such as the SPDR Gold Shares (GLD). Fundamentally, GLD is the world's largest physically backed gold ETF and has a value of $70.17 billion.

Looking at the chart below, you can see that the 200-day moving average has provided strategic entry points for the bulls since March 2019. Based on the strength of the uptrend, followers of technical analysis will likely maintain a bullish outlook on gold until the price notches several consecutive closes below $172.28. Based on this pattern, buy orders will likely be placed as close to current levels as possible in anticipation for a bounce back toward the 2020 highs.

Chart showing the share price performance of the SPDR Gold Shares (GLD) 

The phrase flight to quality usually refers to gold, which is often called the currency of last resort. Currency is any form of money of any country, and money is anything that can be exchanged or bartered for something else, making gold the ultimate form of money during an economic recession.

The VanEck Vectors Junior Gold Miners ETF (GDXJ)

Large-cap gold miners are of specific interest to many active traders due to their size and breadth of operations. However, small-cap miners such as those held within the VanEck Junior Gold Miners ETF (GDXJ) may be of more interest due to higher levels of correlation to spot gold prices.

As you can see from the chart below, the pattern looks like that of GLD above. Notice how the Junior Gold Miners fund is currently trading near the combined support of a horizontal trendline and its 200-day moving average and how it found support in November and early December. Based on the pattern, active traders will most likely hold a bullish outlook on small-cap gold miners until the price closes below the support levels near $50.

Chart showing the share price performance of the VanEck Vectors Junior Gold Miners ETF (GDXJ)

Yamana Gold Inc. (AUY)

As one of the top holdings of the GDXJ ETF, Yamana Gold will likely capture the attention of many active traders over the weeks ahead. In the chart below, you can see that the price drifted sideways for much of 2020 and has now moved toward the support of its 200-day moving average.

Followers of technical analysis will likely look to buy near current levels and then protect against a shift in sentiment or company fundamentals by placing stop-loss orders below one of the dotted trendlines, depending on risk tolerance and outlook.

Chart showing the share price performance of Yamana Gold Inc. (AUY) 

The Bottom Line

Precious metals such as gold and the associated miners will likely be of growing interest to active traders over the weeks ahead. Nearby levels of support such as long-term trendlines and 200-day moving averages will likely be used by these traders when determining the placement of buy and stop orders. Some long-term traders may want to see several consecutive closes below these support levels before selling because the uptrend is still intact from a longer-term perspective.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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