During times like these of heightened uncertainty, investors
always look for ways to protect their assets from a multitude of
potentially negative future events. With such concerns,
professional as well as everyday investors inevitably turn to gold.
And for good reason.
Historically, gold has been a reliable safe haven, holding its
value in even the most troubled political and economic times and
through the most vicious of bear markets. Gold is widely viewed as
a classic hedge against inflation-related loss of purchasing power,
but also to protect against a declining dollar. Gold is also a
great tool for portfolio diversification, which seems even more
important today as investments around the globe appear to be
becoming more and more correlated.
On that note, let's turn our attention to longer-term charts of
State Street's SPDR Gold Shares ETF (NYSEArca:GLD). This ETF's
objective is to reflect the relative performance of the price of
gold bullion, minus expenses.
We begin by looking back at a weekly chart from 2005 through
2008. First, it's plainly visible that the price of gold has been
more or less on a continuous long-term upward trend in this period,
from points (A-B) on the chart. At Point C, the technical investor
was given a beautiful long entry signal, where the price was not
only retesting the upward-sloping trend line but also had a clear
upward break of a well-traced, 18-month "symmetrical triangle" at
More recently, over the last two years, we can see in the chart
below that GLD has continued moving upward, but this time in a more
consistent and predictable manner within a bullish price channel.
GLD is now again at the lower boundary of the upward-sloping line
(D-E) where price support has held on four separate occasions.
(Those support points are indicated by the plus signs.)
In other words, we now appear to be at a critical juncture
waiting for the charts to print a few more bars to give technicians
a clearer signal of the ETF's probable price direction in an
intermediate time frame.
Lastly, for a more thorough study, let's look a little more
broadly at the price history of this ETF. In our above analysis, we
broke our charts into two separate time periods to focus on the
major technical patterns that were-and still are-playing out. The
chart below shows the two patterns we looked at previously-the
"Symmetrical Pattern" (A-B) and the "Bullish Price Channel"
(D-E)-plus a major classic technical pattern that bridges them
In this third view, the more experienced technician will
immediately spot the "inverse head & shoulders" formation in
the center of the chart at points (D-F-G). How accurate and
predictive was this pattern?
First, take a look at the vertical line on the right side of the
chart depicted by the numbers (3-1-2). Using classic measuring
techniques, we measure the distance from prices at the neck line
break point (
) at price (1) to the lower part of the formation (
) at price (2). We then projected this same distance upward to
price level (3), which, according to classic theory, is where
prices should, at a minimum, rise to. On the chart, that would be
point H which, surprise, is exactly where prices rose to and have
since retraced from, bringing GLD's price to its current
Technicians, of course, would view this as a logical
self-fulfilling event, while technical skeptics and fundamentalist
might argue this is mere coincidence. I'll leave that determination
up to each individual reader.
Wherever people fall on that question, most I think would agree
that gold's long-term price trajectory will not only be determined
by global investors' desire to offset some of the risks we
discussed above, but also, of course, the fundamentals of supply
and demand related to the metal's practical uses. Our analysis of
the charts simply gives us clues regarding the more probable
outcome for future price movements and direction.
As always, have a profitable week and remember always, "Keep it
All data and information provided in this column are for
informational purposes only, and should not be regarded as
recommendations to buy or sell securities.
All charts created with TradeStation. ©TradeStation
Technologies, Inc. All rights reserved.
Ray Rondeau is president of the Boston Chapter of The American
Association of Individual Investors
When he's not trading using technicals, he presents to various
groups on technicals and trading in New England and beyond. He can
be contacted for presentation information at
Don't forget to check IndexUniverse.com's ETF Data
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