Ongoing trade tensions between the United States and China, along with geopolitical tension in the Middle East, have underpinned gold prices throughout most of 2019. Furthermore, a weakening U.S. dollar this year brought about by three Federal Reserve interest rate cuts has helped support the precious metal, as the two assets typically have an inverse correlation.
However, the commodity opens this week fresh off its biggest five-day fall since May 2017 – down roughly 3%, after reports emerged last Thursday that Washington and Bejing had agreed to roll back tariffs on each others' goods if the first phase of a trade deal is agreed upon by both countries. While the yellow metal initially sold off after the news surfaced, the move may be short lived after President Donald Trump cautioned Friday that he had not approved the deal negotiated between U.S. and Chinese officials.
"China would like to get somewhat of a rollback, not a complete rollback, 'cause they know I won’t do it," Trump said, as reported by Reuters. "I haven't agreed to anything," the president added.
Moreover, with stock market valuations becoming lofty, any pullback in sentiment may see risk-on assets come under selling pressure, helping gold prices regain their luster. From a technical standpoint, the three gold exchange-traded funds (ETFs) outlined below have formed chart patterns that indicate prices may be about to resume their long-term uptrend. Below, we review the metrics of each fund and put forward some alluring trading ideas.
SPDR Gold Shares (GLD)
Launched in 2004, the SPDR Gold Shares (GLD) invests directly in physical gold by holding the commodity in London vaults, offering investors and traders a vanilla-like product for following the precious metal's spot price performance. A daily trading volume of roughly 9 million shares, coupled with an average spread of just 0.01%, makes the fund suitable for both long- and short-term strategies. As of Nov. 11, 2019, GLD controls an enormous asset base of $44.46 billion, charges a 0.40% annual management fee, and has returned nearly 20% year to date (YTD).
Since rising 22% between May and August, GLD shares have tracked lower within an orderly descending channel. If last week's steep pullback continues in subsequent trading sessions and the relative strength index (RSI) moves into oversold territory, look for an entry point toward the pattern's lower trendline at the $136 level. Once in a trade, consider setting a profit target near the channel's top trendline at $142 and placing a stop-loss order about $2.50 below the execution price. Before committing capital, traders may decide to wait for price action to show signs of a reversal, such as the print of a hammer or piercing candlestick pattern.
VelocityShares 3x Long Gold ETN (UGLD)
The VelocityShares 3x Long Gold ETN (UGLD) aims to deliver three times the daily investment results of the S&P GSCI Gold Index ER, making the fund a cost-effective product for those who want to take a geared bullish bet on gold prices. Traders should, however, be aware that returns greater than one day may deviate from the advertised leverage due to the effect of compounding. More than 130,000 shares change hands daily, providing ample liquidity for active traders. However, the ETN's average spread of 0.06% may be slightly too wide to book minuscule scalping profits. The fund charges an expensive 1.35% management fee, although this is less important given its short-term tactical mission. UGLD has assets under management (AUM) of $191.04 million and sports a YTD return of 35.42% as of Nov. 11, 2019.
The UGLD share price has also carved out a descending channel over the past three months to create high-probability support and resistance zones for actioning trades. Those looking to buy the fund should think about setting a limit order close to the pattern's bottom trendline at the $124 level. In terms of trade management, consider placing a stop order somewhere below $118 and targeting a move up to $140, where price may encounter selling pressure from the channel's upper trendline and 50-day simple moving average (SMA).
Direxion Daily Gold Miners Index Bull 3X Shares (NUGT)
With net assets of $1.58 billion, the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) has an objective to return three times the daily performance of the NYSE Arca Gold Miners Index. The tracked benchmark comprises global gold and silver mining firms that operate in both developed and emerging markets. Its top two holdings – Colorado-based Newmont Goldcorp Corporation (NEM) and Canadian gold mining giant Barrick Gold Corporation (GOLD) – carry a cumulative weighting of about 22%. Due to the ETF's use of derivative instruments to achieve leveraged returns, its expense ratio of 1.35% isn't cheap. More importantly, dollar volume liquidity of more than $335 million most days, combined with an average two-cents spread, keep trading costs minimized. As of Nov. 11, 2019, NUGT issues a dividend yield of 0.35% and has gained 50% on the year.
After setting a 52-week high just above $45 in early September, NUGT shares have retraced within a textbook falling wedge pattern. As global financial markets moved into "risk-on" mode last week, the ETF's price tumbled toward a confluence of support from the bullish chart pattern's lower trendline and 200-day SMA. Those who buy at current levels should anticipate an upside reversal, with a possible test of the previously mentioned 12-month high at $45.10. Manage risk by positioning a stop order just below $24 and raising it to the breakeven point if price climbs above 50-day SMA.