The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products once again find themselves bracing for the worst from another Federal Reserve meeting.
And while the worst, in the case of gold ETFs that being higher interest, may not come to pass later this week, bullion-backed funds have some work to do before recapturing investors’ confidence.
Dragging on the gold market, volatility is beginning to ease after markets try to recover from the swift correction – gold is seen as a safe-haven asset that provides a good store of wealth during tumultuous market conditions. Additionally, the U.S. dollar is beginning to strengthen against foreign currencies – gold is priced in USD, so further buying becomes pricier for foreign investors. [Safe-Haven Demand, Dovish Fed Help Gold ETFs Regain Ground]
Gold has been in a 2-year bear market, which has seen failed rallies on the back of various news events. Continued strength in the US economy and labor market has offset political and economic events since the Gold market turned bearish in 2013. A recent U.S. Commodity Futures Trading Commission report showed a drop of 36% in net long positons for the week ending September 8th. This week features the FOMC meeting and the possibility of the long awaited hike in U.S. interest rates. The anticipation of a rate hike has driven the U.S. Dollar higher, and Gold prices tend to be inversely correlated with the USD.
With bullion prices unable to maintain their momentum, some gold traders view the yellow metal as technically imperiled for the time being. GLD currently resides below its 20-, 50- and 200-day moving averages.
Turning to the 3-month continuation chart, we see that Gold is now trading under both the 20- and 50-day Simple Moving Averages (SMA). The 20-day SMA is still above the 50-day SMA, a bullish sign. Traders will be looking to see if the recent down days for Gold will cause the 20-day SMA to again cross below the 50-day SMA. The 14-day Relative Strength Index is in oversold territory at 25.7. Support is found at the 1075 level, which is not too far from the important psychological level of 1000,” according to OptionsExpress.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.