MetalMania: Playing Gold’s Fool

inflation, hedge, financial crisis, bullionTwo weeks ago, Greece was headlining the news.  The S&P 500 was resting on its 200 day moving average for the second time, and the market was gripped with fear and uncertainty.  Yet, amidst all this chaos, both the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) were muted in response.  And when the equity market responded with a huge 7% rally the following week, the metals didn’t respond.  It looked like fools gold; the metals were under pressure and out of sorts with market action and global events.  Most indicators pointed to another leg down.  But, therein lies the difficulty in following and trading the metals.  And this is precisely the reason to closely monitor support and resistance areas.

Skullduggery and gold foolery!  The market was gold’s fool.  After the big equity rally, the market consolidated a bit leading into last friday’s poor June jobs report.  But, after slipping under the radar, the metals rallied into the report, sending signals about the jobs number (that fell mostly on deaf ears).  Now the metals are off and running, with Gold making new highs and Silver breaking its upper wedge line, while rebounding above its 50 day moving average and setting its sights on the round number of 40.  See updated charts below for GLD, SLV, and the SPDR S&P 500 (SPY).

Parting thoughts:

Be mindful of the quick and powerful metal rally.  There is QE3 chatter and the European contagion is still lingering.  It will be important to watch the action in and around 160 and 40, should the GLD and SLV get to those levels.  Note that 148 to 150 will be a key support for GLD to hold.  Happy investing.

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Previously published as a blog by Minyanville.

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No positions in any of the securities mentioned at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.