The bulls are at it again this week as stimulus hopes have taken
center stage at home and in the eurozone. Investors on Wall Street
continue to digest corporate earnings results, which for the most
part are coming in better-than-expected; however, looming Federal
Open Market Committee (FOMC) minutes and Friday's monthly
employment report will surely steal the spotlight this week.
Overseas, investors are anticipating for the European Central Bank
to cut rates down to 0.5% from 0.75%, potentially paving the way
higher for gold prices as inflation fears return.
Consider the one-year daily performance chart for the well-known
SPDR Gold Trust
(NYSEARCA:GLD) below. This ETF endured a nasty sell-off spanning
from 4/12 to 4/15 after massive profit taking pressures swooped in
and inevitably triggered countless stop-loss orders along the way;
note that the blue line in the chart signifies GLD's historic
support around $150 a share, and as you can see, the downside
damage was only exaggerated as prices dipped below this closely
watched support level.
GLD's rebound over the last two weeks has been encouraging for
precious metals investors, but the rally may soon run out of steam
when considering the prevailing trading volumes; notice how the big
down days were accompanied by above-average trading volumes, while
the recent rebound has seen declining volumes, perhaps hinting at a
potential trend reversal in the near future.
Click to enlarge
The upcoming FOMC minutes at home and the expected European Central
Bank rate cut will serve as fundamental catalysts for GLD as
investors will surely look to re-position their portfolios
following any policy changes. Any hints of continued easing and
"loose money" policies should bode well for gold as inflation fears
return. On the other hand, any mentions of improving economic
conditions could hinder GLD's performance on the day, as investors
jump ship to riskier assets.
From a technical perspective, GLD has room to run until it nears
the $150 level, where it will likely face stiff resistance; in
terms of downside, this ETF has support at $130 a share, while any
move lower will likely welcome accelerating selling pressures. As
always, investors of all experience levels are advised to use
stop-loss orders and practice disciplined profit-taking techniques.
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Editor's note: This article by Stoyan Bojinov was originally