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Gold Has Room To Move Higher - Technical Trader
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(Kitco News) - As gold prices continue to trade firmly above $1,300, one technical trader says the precious metal has room to go higher as charts point to more gains.
“We're seeing a pretty impressive test of the recent range highs, and I think that based on what the macro situation looks like, gold should push higher,” Todd Gordon, founder of the TradingAnalysis.com, told CNBC.
For his analysis, Gordon compared the gold-tracking exchange-traded fund SPDR GLD to that of the ETF that tracks long-term bonds (TLT).
The technical trader pointed out that even though both traded “in a fairly tight correlation” in 2017, a gap developed in July. GLD’s 8% rise since July has it beating the TLT, Gordon said.
“What we see here is TLT diverging just a bit, meaning we are approaching those June highs but have not broken out where GLD looks poised to continue on through,” noted Gordon. “So as both markets are pressing higher, that signifies a Fed that is perhaps on hold longer than we'd expect.”
A sharp decline in the U.S. dollar has been supporting gold prices in what is the usual inverse relationship between the two. And, according to Gordon, a more dovish Federal Reserve will continue this trend.
A key level to watch for Gordon on the GLD chart is around $126, which he described as a “significantly technical area.”
On Tuesday, GLD moved higher in tandem with gold prices, last trading up 0.18% at $124.92.
“Gordon is buying the September 123-strike call and pairing that with the sale of the September monthly 126-strike calls for a total cost of $1.00, or $100 per options spread. That $100 will be lost if GLD closes below $123 on Sept. 15 expiration,” CNBC reported.
“The trade breaks even at $124, which is the strike price of the lower call plus the per-share cost of the trade. And if the GLD closes above $126 on Sept. 15 expiration, Gordon will enjoy his maximum reward of $200.”
Overall, GLD had a great run in 2017, rising 13% year to date and hitting levels not seen since the U.S. elections last year.
