Gold was the best performing asset class in the first quarter of 2016 and the pros are muttering about a new bull market in the yellow metal.
What’s piqued my interest, however, is that the gold rally began when the general equity market tanked on the first trading day of the year, but it didn’t falter once the S&P 500 hit bottom in mi-February.
The inverse relationship between equities and GLD has been a long-term theme in my writing and I’ve been expecting the correlation to continue until GLD hit $85.
Instead, the gold rally has continued independently of the surge in the equity market, presumably because during this rally everyone was waiting for the next shoe to fall and gold seemed like a good hedge against the long-term consequences of a deflationary bear, even if the start of that bear is somewhat delayed.
Are the gold bugs right this time? The question will be settled soon.
Based on volume profile analysis, which looks at volume at price, not volume at time, gold is now at a crucial decision point (see accompanying chart.) The trading over the last few weeks has created a bona fide Volume Profile Point of Control at $118.50. This is the price at which the largest number of GLD shares has traded since January of 2005. That’s the lookback period for this analysis.
GLD closed at $118.43 on Friday. GLD is in equilibrium, but over the next few weeks the balance will tip in one direction or another and honestly, I have no idea which direction it will go. But knowing the volume pattern in the background makes is easy to map out the two highly divergent possibilities.
Either GLD breaks out and heads to $134 and then possibly $141… or it drops to $90. Those are the key support and resistance levels. Keep an eye on GLD… when the move comes it should be very tradable and I would not be looking for any correlation with the S&P. Gold is trading in its own world right now.
One final thought: this piece on GLD is analysis; but there’s a huge difference between analyzing the market correctly and capitalizing on the analysis. If you want to sharpen your real world trading skills so you can profit from well-telegraphed moves like this, check out: daytradingpsychology.com/mastermind
