Gold Fix (GLD)

A few things to consider…

• First, investing legend Paul Tudor Jones says gold is his best bet for the next two years.
• Second, the rest of the bloggo-bugs light up with a poof and say $1700 is the next stop for the shiny metal – and it’s coming fast.
• Third, gold hits resistance and backs off.

So what are we supposed to make of all this Au-phoria?

Is gold going higher, or no?

And what about our open GLD trade?  Do we keep it, or wrap it up?

Good questions all.

Let’s start with the charts.

This is weekly paste-up of the SPDR Gold Shares ETF (NYSE:GLD) for the last four years.  Note well the three separate pieces of overhead resistance we’ve highlighted (in blue) –

It stacks up like this –

1. Number one is the long term weekly moving average (in yellow) that turned lower for the first time in TWENTY YEARS last summer. Currently at $129, that line puts a formidable cap on the price of GLD going forward.
2. Next is declining upper trendline (#2, in red) that reinforces the line of resistance at $128.
3. And finally, we have a near term double top at $127, the line at which the gold advance was twice turned back over the last four months.

To sum, any action in GLD that does not move above $130 in the near term and remain there, is, in our opinion, doomed to retreat.

So that’s that?

We see little in the way of hope for silver, either.

This is the iShares Silver Trust (NYSE:SLV) weekly chart for the same four year period, and it shows a classic, long-term declining triangle, a bearish formation, to say the least –

Here, again, resistance is formidable.

1. All the moving averages are unwound and descending, with price beneath them all.
2. The upper trendline (in red) provides additional downward pressure at the $14.50 level (and falling).
3. More pressure emerges between $15 and $16 from the mid-term declining MAs (orange and sepia).
4. Sole support exists at $13, after which it’s Voyage to the Bottom of the Sea.

We’d have to see a move to $15, at least – or better $16 – in order to hold out hope for an extended bull move in the price of silver.

The initiative was launched back on April 17^th in a letter called Not For All the Gold in Egypt, and it asked you to consider selling the GLD June 21st 122 CALL for $1.45 and buying the GLD June 21st 127 CALL for $0.43, for a total credit of $1.02.  We then suggested you use the proceeds to purchase the GLD September 20th 116 PUT for $0.95.  Total credit on the affair was $0.07.

And now?

We’re just a week away from expiry, and the latest push higher in GLD has put the June options in play.

And we don’t like that.

So we’re taking the following action.

• We’re selling our long 127 CALL for $0.48, and
• We’re rolling out our 122 CALL, by buying it back for $3.50, and selling the July 5^th 123 CALL for $3.20.

In so doing, we buy some time and add another $0.18 to our initial credit.

The long September PUT, of course, remains open.

We’ll keep an eagle eye on this one.

Many happy returns,

Matt McAbby

Follow @HughLOHaynew