Gold prices have fallen in recent sessions alongside most other commodities. While the pullback may have spooked some fundamental investors into selling, followers of technical analysis aren’t giving up on the precious metal quite yet. In this article, we take a look at the charts of three gold-related exchange-traded funds (ETFs) and try to explain why the recent pullback may actually be the buying opportunity that some have been patiently waiting for. (To read more on this topic, check out: When in Doubt, Buy Precious Metals.)
SPDR Gold Shares (GLD)
When it comes to investing in gold and other commodities, most traders now turn to exchange-traded products such as the SPDR Gold Shares ETF. The popular funds in today’s markets comprise either physical bullion or futures contracts. Either way, they are efficient tools for tracking the performance of the underlying commodity. GLD is the most well-known gold-tracking asset and is the largest physically backed gold ETF in the world.
Taking a look at the chart below, you can see that, despite the recent close below the 200-day moving average, the fund is still trading near a defined ascending trendline, which many expect to act as a strong level of support. Notice how the price has dipped below the 200-day moving average in the past, which suggests that it may be too early to panic at this point. The recent bounce near the trendline suggests that the bulls are still interested and that it could be a good time to buy in case the price heads higher like it did in the past. Stop-loss orders will likely be set below the swing low or ascending trendine in order to protect against a fundamental shift in supply and demand. (For more, see: 3 Charts That Suggest It’s Time to Buy Gold.)
VanEck Vectors Gold Miners ETF (GDX)
Another fund that is commonly used by the gold bugs is the VanEck Vectors Gold Miners ETF (GDX). As you can see from the chart below, the price is trading within a defined channel pattern, and the bounce in the underlying metal suggests that we could see a move toward the resistance level over the coming weeks. The pattern is a popular consolidation pattern and is a favorite among active traders because of the clear buy and sell signals that it generates. Based on the analysis of the GLD ETF above, we would expect active traders to maintain a bias to the upside and watch for the price to close in or move above the resistance near $25. (For more, see: 3 Charts That Suggest It’s Time to Buy Precious Metals.)
[If you’d like to find out more about recognizing chart patterns and using them to establish your trading strategy, take a look at the Technical Analysis course on the Investopedia Academy]
VanEck Vectors Junior Gold Miners ETF (GDXJ)
Of the gold-related ETFs, the junior miners as represented by the VanEck Junior Gold Miners ETF (GDXJ) are trading within the most interesting chart pattern. As you can see from the chart, the fund’s price is currently trading near the resistance of a defined symmetrical triangle pattern. Given the rise arguments stated above, it seems more likely that traders will hold an upward bias over the coming weeks and will most likely watch for a breakout above $34.25 as a catalyst for a major move higher. (For more, see: 3 Positive Long-Term Charts for Precious Metals.)
The Bottom Line
Gold has been dragged lower over the past couple weeks along with other commodities, which has caused some traders to question the validity of the uptrend. While the pullback may have sent the price below some major support levels, there are still major trendlines nearby that will likely prop up the price from further selling pressure. Given the defined patterns discussed above, the charts suggest that it could be a good time to buy gold-related assets. (For more, see: Return of Volatility Triggers Buying Opportunity in Gold.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.