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Staying Long on GLD


Metal broke out this week, now what?


Professor Smita Sadana,

Kudos on your excellent call on gold (GLD). Unfortunately, I've completely missed out on this stellar rise. Wonder whether I can still jump on the bandwagon at current price when it's so near the resistance level?

Minyan Chen

Minyan Chen,

Here at MV we don't provide financial advice. However, I can take a look at technicals of GLD.

While I keep GLD on my radar at all times, it became actionable on September 2, when it broke out of the triangle formulation. (For more details please see MV Weather Report on September 2). Professor Lance Lewis has been apprising us of the fundamentals of this upcoming move in his recent notes.

As you noticed, it's close to an important resistance level, so I would expect some pullback. As long as it's on minor volume and contained at the recent breakout level, it should be considered as a welcomed pullback.

The current stops are at a close below $92.5 (the bottom of the triangle, just below the confluence of 10-, 20-, and 50-day moving averages)

Click to enlarge

However, I wouldn't short it, expecting such a pullback -- although I have trimmed some of my position in an effort to add to it if it comes lower.

The reason is that gold's coming out of a tight volatility squeeze and the Bollinger Bands have just begun expanding and might signify higher prices ahead. Here's the chart (all my attempts to simplify it have been somewhat limited). That's a different picture from the moves in February and April of this year.

Click to enlarge

So, recapping, as long as it doesn't violate important technical levels on the downside on heavy volume, I'll continue to play this on the long side. As per the technical targets, let's visit them if it actually breaks out beyond the 2009 highs.

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Position in GLD

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