Gold - Looking At A Massive Breakout

by: Nikhil Gupta
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- Gold closes above the 30-day SMA and sustains higher.

- The SPDR Gold Trust ETF follows suit.

- Both are expected to cross their strong overhead resistances in the near-term.

 
Escape Velocity is a term which refers to the minimum speed that an object needs to break free from the Earth’s (or any other planet’s) gravitational pull and escape without further propulsion. I am expecting a similar scenario in gold and GLD. What could be the trigger? Two things immediately come to mind: A near-term breakdown in the U.S. dollar or fear returning to the broader markets.
 
On March 16, I had submitted an article titled Gold – This Opportunity Will Pass Sooner Than You Think in which I had commented that investors should get into gold since the precious metal could cross the overhead resistances pretty soon. As for the SPDR Gold Trust ETF GLD, I expect it to surpass $120 by next week.
 
The daily GLD price chart below indicates that the ETF is steadily crossing the technical hurdles with consistent buying interest. A couple of sessions ago, the ETF closed above the 30-day SMA of $117.19 after taking out the 50-day SMA following the Fed rate hike. Very quickly, GLD has not only crossed two important SMAs but is also sustaining above the 23.6 percent Fibonacci retracement of $117.20. I believe that bulls will find no trouble in crossing the recent peak of $120.40, which coincides with the 200-day SMA of $120.27. Sustenance above the 200-day SMA will bolster the ETF to break out from its medium-term downtrend.
 
Source: TradingView
 
 
GLD is witnessing strong buying interest with help from an equally strong recovery in gold prices. The daily gold futures price chart clearly tells that the precious metal has witnessed five consecutive positive sessions as momentum shifted in the favor of buyers. Similar to GLD, the precious metal is also sustaining above the 30-day and the 50-day SMAs and is about to test the 200-day SMA at $1262.72. At the time of writing this article, gold is repeatedly attempting to remove the bears at the psychological level of $1250.
 
Source: TradingView
 
 
The interesting part in gold’s story is that the commodity has entered into a contracting range, a breakout from which is imminent. I am of the opinion that Aurum will eventually choose the upward trajectory.
 
I repost this weekly U.S. dollar index (NYSEARCA: UUP) chart to highlight the intense selling pressure that the greenback is facing. Upon a closer look at the chart presented, it becomes evident that the currency is being pushed below the previous tops (marked by the dotted horizontal pink trendline), which should have acted as the support. The U.S. dollar index is on the verge of breaking down in the form a head and shoulders pattern.
 
Source: TradingView
 
 
If the dollar index closes below the important neckline support of 99.50 on a weekly basis and remains depressed, then we can expect levels closer to 96.
 
Such a tragic fall will act as the booster shot for the dollar-denominated precious metals in the near-term since it reduces the bill for the gold importing nations and consequently, enhances demand. Any immediate breakdown in the U.S. dollar will act as the much-needed trigger that gold and GLD need to levitate.
 
Gold may also witness increased buying as fear begins to take control of the world markets. Now, this fear does not necessarily have to occur because of a panic fall in the global markets, it can also reign supreme if the tensions between the U.S. and North Korea continue to escalate. Gold has historically been an investor’s best friend in times of rampant fear and crisis.

It might seem like I am being overly optimistic on gold but I am just reading the technical price charts and conveying the sentiments of the broader market which are reflected in the resurgence of gold. It would definitely be an utter disappointment if the precious metal fails to cross the resistances discussed above after such a strong display of strength in the past several weeks.
 
Having said the above, I will make sure to update my readers if a potentially negative event hampers the rally in gold. So, stay connected!

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