Gold exchange traded fund prices rallied for the third consecutive day, moving out of oversold levels as investors moved back into precious metals. The strong performance led gold minors higher which helped the broader equity indexes gain traction. Overall sentiment remain negative, and it will likely take a while before bullish sentiment in the precious metals complex is able to assist in a sustained rally.
The most prominent gold ETF (NYSE:GLD), mostly holds exchange traded futures contracts, which helps the ETF emulate the returns of both spot and deferred gold futures prices. Fitch’s downgrade of the UK economy, help boost gold ETF prices, as capital flows turned toward hard assets. The UK government is expected to release its first look at first quarter Growth Domestic Product data which is expected to show a flat reading. This leave scope for a slight negative print in GDP which would dip the country into recession.
Gold interest rate differentials contracted over the past few trading session which made borrowing of physical gold less expensive. The contango which is the difference between holding gold today and gold in three months also contracted, which helps reduce the costs of leveraging gold contracts.
Moving forward, there are a number of data points that could alter the GLD ETF during the balance of the current week. US GDP is scheduled to be released on Friday and is likely to produce a growth rate of approximately 3%. Growth is expected to be driven by a strong increase in inventories, as consumer spending remains robust.
Technically, the GLD has bounced from severe oversold territory as reflected by the Relative Strength Index (RSI), which climbed back from a reading of 12 in the middle of April. The RSI is an oscillator which measures the closing prices of a security over a specific period and rates the changes in the prices in an index format. The reading on the RSI at the beginning of the week was close to 32, which is slightly above the trigger level for an oversold condition which is an index reading of 30. The chart above as used courtesy of Banc De Binary.
Short term support on the GLD is seen near the 5-day moving average near 134.50. Medium tern support is the Bollinger band low (which is measured as 2-standard deviations below a 20-day moving average) near 129. Price action on the GLD is likely to test the top end of a gap created by the slide in prices from 144 to 135.
As the GLD has been rebounding over the past few trading session volume has been declining. Volume peaked during the prior week during the two days of the powerful liquidation of gold prices.
The trajectory of momentum is slowing with the MACD (moving average convergence divergence index) making a higher low for three consecutive trading sessions. The MACD is still printing in negative territory, but the potential for a buy signal can be achieved with a few higher GLD closes.
By Marcus Holland from Day Trading Guide.