By Mott Capital Management
- The GLD ETF is nearing a big break out on the chart.
- The dollar index is nearing a big break down on the chart.
- A weaker dollar could be a big positive for the GLD ETF in 2020.
The SPDR Gold Trust ETF (GLD) may be getting ready for a big move higher in 2020. One reason why the GLD may benefit is that the dollar index is showing signs of significant weakening, and is nearing a massive technical breakdown. I first noted that the GLD was breaking out for my Market Place subscribers on December 26.
Short-Term Break Out
The GLD ETF has formed a bullish technical pattern known as a pennant. It is a bullish continuation pattern, and it suggests that if the ETF breaks above resistance at $143, it could rise to around $149 over the short term, an increase of about 4.5%.
Long-Term Break Out
However, longer term, the ETF may be heading even higher. Based on the ETF’s move higher from May 2019 until September 2019, the GLD may rise by around 19% in 2020. The GLD’s price increased by roughly $27 during the summer months of 2019, and projecting that move forward off the pennant pattern indicates the ETF could rise to around $163 from its current price of approximately $143 on December 31, 2019.
The dollar index, which measures a basket of currencies against the U.S. dollar, is showing signs of weakness. The index is at a level of technical support at 96.50, and should that support level break; the index could drop to around 94.
Additionally, another bearish sign for the dollar is that the relative strength index has been trending lower. It indicates that bearish momentum is entering the index, and it is likely to continue to grind lower longer term.