Gold Retests Key Moving Average

For the second time in 2017 Gold (GLD) is testing resistance at its 200-day simple moving average (200SMA). Traders use the 200SMA as an important trend indicator. For example, identifying the slope of the 200SMA or the price relative to this moving average are useful trading techniques.

After rallying from late December 2016 to late February 2017, Gold encountered its first test of the 200SMA. Subsequently, the price backed off to previous support before touching its 200SMA again this week. In doing so, Gold formed a higher low at 114 which may be constructive for price action in the near-term.

Specifically, if Gold can close above its 200SMA look for another 10 points of potential upside or a retest of the 52-week highs around 130 over the coming weeks to months. However, continued faltering at the 200SMA should be taken as a sign of weakness and offer traders an opportunity to get short Gold in line with the longer term trend.

Zooming out to one order of magnitude longer we can see that the weekly time frame still has a bias for a downtrend. Over the past five years, previous tests of overhead resistance at the 200SMA have provided good strategic shorting opportunities. For example, we see the downtrend not only confirmed by the slope of the 200SMA but a continuous series of lower highs and lower lows in price during the 2013 to 2016 time period.

In late 2016 GLD formed a higher low from its previous weekly low in late 2015. However, this behavior is unconfirmed by MACD and RSI which could be indicative trend and internal weakness during the move up between the two lows at year-end 2015 and year-end 2016, respectively.

Furthermore, using one order of magnitude even larger the uptrend during the first half of 2016 appears to resemble a minor pullback against the long-term downtrend in price that began in late 2011.

Without a decisive close above the 200SMA Gold will likely remain within a trading range between 110 and 120. Once Gold takes out resistance or previous lows defined during the longer term downtrend there should be some better long-term trade set ups available to traders.

As with all trades, keep your portfolio risk minimized by risking only a small portion of your account on any trade. Also, position risk should be contained to an acceptable level to maintain emotional control as well as build an attractive risk-to-reward profile for your trading system.

As always, please feel free to contact me with any comments or questions. Thanks for reading.

John

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