Gold Set to Rally?

Schaeffer's Investment Research
  NOV 07, 2012 10:04 AM

GLD offers an attractive risk-reward.

 


The SPDR Gold Trust (NYSE:GLD) had itself quite a day yesterday, rallying more than three points, or just over 2%. A couple observations have caught my eye, and makes me lean bullish into year end.

For example, the pullback in the GLD that began in early October was contained at the 320-day moving average. Yes, I know, a very odd moving average, not popular among technicians. But, note how this trendline marked a key bottom in late-December 2011. And, after a break below this trendline in May 2012, the GLD went sideways for three months, as the 320-day moving average marked a short-term peak in June.

Also, per the second chart below, note in late-October how the 20-day buy (to open) option volume began  increasing from low levels. I have noticed that during the past few years, when buy (to open) option volume is increasing on the GLD, gold has fared well. And when buy (to open) volume is decreasing, GLD has either declined or traded in a range. My theory is when buy (to open) GLD option volume is increasing, it is evident that bulls are in accumulation mode, using GLD calls to speculate on higher prices, or GLD puts to hedge a long futures position.

GLD offers an attractive risk-reward, as you can target $185, the September high, and close your position if GLD trades back below its 320-day moving average.

GLD With 320-Day Moving Average – Plus, Trendline Breakout


Click to enlarge

20-Day Buy (To Open) GLD Option Volume



This article by Todd Salamone was originally published on Schaeffer's Investment Research.

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