Gold and the Fundamental Trading Dilemma (GLD)
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The ongoing crisis in Europe and the potential implications for the Euro currency, along with quantitative easing in the U.S. and abroad, should have sent spot gold and SPDR Gold Trust ETF (NYSE: GLD) flying, but it hasn't. Gold is going nowhere fast. So what the heck is going on?
From a technical perspective, spot gold and SPDR Gold Trust ETF (NYSE: GLD) is in a trading pattern called a consolidation triangle. This pattern is identified by lower highs and higher lows, and it is a type of range pattern that slowly contracts in on itself. As a result, investors following the precious metal are frustrated and many are simply confused.
Notably, the triangle pattern is supported by a schism in the fundamental data. While it is true that potential QE3 is, in theory, supportive for gold, it is also true that when it comes on the heals of a contraction in inflation, the result is tempered.
Contrary to popular belief, inflation doesn't really push gold prices around all that much. Really, it is the fear of hyper-inflation in major industrialized countries that gets gold moving. Presently, there are decreased expectations for the hyper-inflation in the U.S., and this has resulted in gold's decline in value this year. If the Fed goes forward with proposed QE3, depending on the size and scope of the measures, the gold bull story could reemerge.
In the meantime, gold is being pulled lower by a stronger dollar and increased flight into U.S. denominated assets, notably U.S. treasures. In response, gold has become a risk asset that is ultimately tied to a one-off event. In other words, the price action makes much more sense if gold is thought of as an insurance policy against hyper inflation.
A technical analyst at Commerzbank said in a note recently that he expects the major $1,532/1,522 support area, which held in September and December, to give way over the summer. This is a logical assessment, but it really depends on the Fed's response to weakening conditions in the U.S. economy. If investors think Bernanke is overdoing it, gold swings higher. If he holds back, gold tracks lower. It is really that simple.
SPDR Gold Trust ETF (NYSE: GLD) is expected to open flat at 153.09 on Tuesday, July 24, 2012. The spot price trades at $1578.
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From a technical perspective, spot gold and SPDR Gold Trust ETF (NYSE: GLD) is in a trading pattern called a consolidation triangle. This pattern is identified by lower highs and higher lows, and it is a type of range pattern that slowly contracts in on itself. As a result, investors following the precious metal are frustrated and many are simply confused.
Notably, the triangle pattern is supported by a schism in the fundamental data. While it is true that potential QE3 is, in theory, supportive for gold, it is also true that when it comes on the heals of a contraction in inflation, the result is tempered.
Contrary to popular belief, inflation doesn't really push gold prices around all that much. Really, it is the fear of hyper-inflation in major industrialized countries that gets gold moving. Presently, there are decreased expectations for the hyper-inflation in the U.S., and this has resulted in gold's decline in value this year. If the Fed goes forward with proposed QE3, depending on the size and scope of the measures, the gold bull story could reemerge.
In the meantime, gold is being pulled lower by a stronger dollar and increased flight into U.S. denominated assets, notably U.S. treasures. In response, gold has become a risk asset that is ultimately tied to a one-off event. In other words, the price action makes much more sense if gold is thought of as an insurance policy against hyper inflation.
A technical analyst at Commerzbank said in a note recently that he expects the major $1,532/1,522 support area, which held in September and December, to give way over the summer. This is a logical assessment, but it really depends on the Fed's response to weakening conditions in the U.S. economy. If investors think Bernanke is overdoing it, gold swings higher. If he holds back, gold tracks lower. It is really that simple.
SPDR Gold Trust ETF (NYSE: GLD) is expected to open flat at 153.09 on Tuesday, July 24, 2012. The spot price trades at $1578.
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