Gold Could Break Out From Reaction Highs Amid Volatility

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Gold Could Break Out From Reaction Highs Amid Volatility

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Gold prices have soared nearly 7% over the past 30 days thanks to a 2.59% decrease in the U.S. dollar index and a 27.2% increase in the CBOE Volatility Index over the same time frame. The North Korean crisis and other political risks have led to a spike in volatility, which has increased demand for gold as a safe-havenasset class. Meanwhile, the declining U.S. dollar has helped boost gold prices, as the precious metal is priced in dollars.

From a supply and demand standpoint, demand for physical gold rose to 1,895 tons during the first half of the year, which represents a 17% increase over the prior year. The increase in demand was offset by a 138-ton surplus during the first six months, despite supplies shrinking 5% to 2,160 tons. Chinese demand fell about 7%, but Indian demand nearly doubled ahead of a 3% tax implemented on July 1, 2017. (See also: What Drives the Price of Gold?)

The SPDR Gold Shares ETF (GLD) is one of the largest gold funds with about $30 billion in assets under management.

Technical chart showing the performance of the SPDR Gold Shares ETF (GLD)

From a technical standpoint, GLD rebounded from the 50-day moving average at $119.11 toward R1 resistance at $122.80 and upper trendline resistance. The relative strength index (RSI) has reached overbought levels at 69.40, while the moving average convergence divergence (MACD) remains in a bullish uptrend. Traders should maintain a bullish bias on the gold fund over the near term given the strong momentum.

Traders should watch for a breakout from upper resistance levels to $124.86 or a move to prior highs at $130.00. A failure to break out from these levels could lead to a move back down to trendline support at around $115.00. Traders should keep an eye on ongoing global political risks as a catalyst for GLD to break out from its year-to-date price channel. (For more, see: Will Gold and Gold Miners Break Out?)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.

Published at Fri, 11 Aug 2017 12:44:00 +0000

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