Gold is one of the most malleable and least reactive elements
known to man. It's used for both practical and symbolic purposes.
Historically, gold has been one of the most common forms of
monetary exchange throughout human history. Its secondary place to
papercurrency did not come about until the 20th century.
And after continuously rising to new highs even after a multi-year
, one other thing can be said about gold: It can also make traders
a lot of money...
With gold rallying to record highs almost daily, it's seen
increasingly as a way to protect oneself against worldwide
Inflationary worries were prominent news this trading week.
China'scentral bank raised its interest rates -- for the fourth
time since mid-October -- to head-off price increases running at
nearly 5% a year. The European
also raised rates for the first time in nearly two years, in order
to curtail rising food and energy costs.
In the United States, rising interest rates may be on the horizon
as the Federal Reserve assesses the need to control recent spikes
and energy prices. Several Fed governors have turned hawkish and
stated rates may need to rise before 2011 is over.
Add inflationary worries to a weak U.S. dollar, intensifying
geopolitical tensions and continued natural disasters that are
wreaking economic havoc, and gold should continue to perform well.
A great way to play the gold rush without having to invest in
volatile gold mining stocks is to purchase the metal through a gold
exchange-traded fund (
SPDR Gold TrustShares (NYSE:
is the largest physically-backed gold
Because the bullion is bought and held in a vault instead of
contracts, as a trader, this means you can in effect own physical
gold without having to literally purchase and store it
The ETF has a reasonable
of 0.4% and currently has a total
net asset value
of about $56.4 billion. In the past year, GLD has returned 29%. By
comparison, the S&P 500 has increased about half that, or
Technically, it appears GLD could continue to rise on strong
The fund is in a
and surpassed an important resistance zone between $139.54 and $142
during the trading week of April 4.
The ETF hit the lower level of this resistance band several times
in late 2010, but was not able to break it. Unable to maintain
strength, GLD fell to a low of $127.80 in January 2011, testing the
Major uptrend line, which intersected around this level. However,
in mid-January 2011, the fund quickly bounced off $129.83 support
and has been on the rise since.
An accelerated Intermediate-term uptrend line has now formed. This
uptrend line, which intersects with resistance near $140, marks the
formation of a second small
pattern, bullishly formed off a larger ascending triangle, marked
by the Major uptrend line and $129.83 support.
Since GLD has just bullishly broken out of this second ascending
triangle, the trend is up.
According to the
-- calculated by adding the height of the triangle to the breakout
level -- GLD could easily reach a target of $154.65 ($142.24 -
$129.83 = $12.41; $12.41 + $142.24 = $154.65).
With no historical resistance in sight, the fund could easily soar
higher. As a result, a target could potentially be double the
triangle's height ($12.41 x 2 = $24.82; $24.82 + 142.24 = $167.06).
The indicators --
, Stochastics and
-- are all bullish.
Since early 2011, RSI has been in an accelerated uptrend. At nearly
70 and rising, RSI is approaching, but has not yet hit, overbought
MACD has given a buy signal, indicated by the black line crossing
above the red line. The MACD histogram is now poking its head in
Stochastics and Williams %R, both overbought/oversold indicators,
show the fund is overbought, however, both remain on buy signals.
Strong securities can become and stay overbought for long periods
Given GLD's strong fundamentals, combined with the current threat
of inflation, I plan to go long on GLD. I will enter the trade at
the market's opening on Monday, April 11. My stop- loss is $129.82,
just below important historical support from September 2010. My
target is $167.06. The current risk-to-reward ratio is about 2:1.
Action to Take -->
Based on the analysis above, you can trade GLD by
purchasing it at market prices and setting a stop-loss at
$129.82. A reasonable target price is $167.06,
good for a potentialprofit of 17.5%.
-- Dr. Melvin Pasternak
P.S. -- I don't know if you're aware of this or not, but a
20-year energy agreement between the United States and Russia is
about to expire. The problem is, this deal supplies 10% of
America's electricity. When the Russians refuse to renew the
agreement, the U.S. will face an entirely new kind of energy
crisis. This disruption could send a handful of energy stocks
through the roof. Keep reading…
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.