The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and other gold exchange traded products slumped in the second quarter with June being a particularly bad month. Despite modest gains on Friday, GLD and rival gold ETFs finished June with losses in the area of 4%.
Gold’s June weakness has the aforementioned ETFs and others looking vulnerable from a technical standpoint, particularly when considering recent moves below critical moving averages.
“Specifically, the 10-day moving average of GLD’s put/call skew on 10% out-of-the-money options recently topped 1.0, indicating puts are being priced higher than calls, last seen at 1.04. According to Schaeffer’s Quantitative Analyst Chris Prybal, this has historically preceded periods of outperformance for the gold exchange-traded fund (ETF),” according to Schaeffer’s Investment Research.
Examining GLD’s Moving Averages
GLD, the world’s largest gold ETF, recently saw its 50-day moving average move below its 200-day line, the technical condition known as the “death cross.” As of Friday, the benchmark gold fund was an average of 4% below its 50- and 200-day lines.
“In the short term, returns are relatively muted, compared to GLD’s anytime returns since 2010. However, the fund’s average post-signal two-month return of 0.9% is more than double that of its anytime return of 0.4%. The gold fund also tends to be slightly more volatile starting two months after a signal, based on the standard deviation of returns since 2010,” reports Schaeffer’s.
Related: World Gold Council, SSGA Launch Low-Cost Gold ETF
As inflation begin to pick up on a growing economy with an 18-year low in unemployment and steadily rising wages, investors may want to think about ways to protect their investments against lower real returns. Consequently, one should consider allocations to assets expected to perform well when inflationary pressures rise.
Some gold market observers believe the yellow can firm up and trend higher next year as the dollar retreats. At least one gold bull believes bullion could return to $1,400 for the first time since 2013. Still, GLD and rival funds need to fight through some resistance to renew traders’ confidence.
“In the near term, though, GLD has several layers of potential resistance to contend with. For starters, the start of the fund’s recent sell-off coincided with a stiff rejection by its 40-day moving average,” notes Schaeffer’s.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.