Gold ETFs Seeing Support After Correction

Gold ETFs Seeing Support After Correction


Ongoing trade tensions between the US and China, along with geopolitical tension in the Middle East, have underpinned gold prices throughout most of Y 2019.

Plus, a weakening USD this year brought about by 3 Fed interest rate cuts has helped support the precious Yellow metal, as the two assets typically have an inverse correlation.

However, gold opened this week fresh off its biggest 5-day fall since May 2017 – down roughly 3%, after reports emerged last Thursday that Washington and Beijing had agreed to roll back tariffs on each others’ goods if the 1st phase of a trade deal is agreed upon by both countries.

While the precious Yellow metal initially sold off after the news, the move may be short lived after President Donald Trump cautioned Friday that he had not approved the deal negotiated between US and Chinese officials.

China would like to get somewhat of a rollback, not a complete rollback, ’cause they know I won’t do it,” President Trump said, as reported by Reuters. “I have not agreed to anything,” he added.

Moreover, with stock market valuations becoming lofty, any pullback in sentiment may see risk-on assets come under selling pressure, helping gold prices regain their luster.

From a technical standpoint

The 3 gold ETFs outlined below have formed chart patterns that indicate prices may be about to resume their long-term uptrend.

Below, 1 review the metrics of each fund and put forward some trading ideas, as follows;

SPDR Gold Shares (GLD)

Launched in Y 2004, the SPDR Gold Shares (GLD) invests directly in physical gold by holding the commodity in London vaults, offering investors and traders a product for following the precious Yellow metal’s spot price performance. A daily trading volume of roughly 9-M shares, coupled with an average spread of just 0.01%, makes the fund suitable for both long- and short-term strategies. As of 11 November 2019, GLD controls an asset base of $44.46-B, charges a 0.40% annual management fee, and has returned nearly 20% YTD. 

Since rising 22% between May and August, GLD shares have tracked lower within an orderly descending channel. If last week’s steep pullback continues in subsequent trading sessions and the RSI moves into oversold territory, look for an entry point toward the pattern’s lower trendline at the 136 mark. Once in a trade, consider setting a profit target near the channel’s Top trendline at 142 and placing a stop-loss order about 2.50 below the execution price. Before committing capital, traders may wait for price action to show signs of a reversal, such as the print of a hammer or piercing candlestick pattern.

Chart depicting the share price of the SPDR Gold Shares (GLD)

VelocityShares 3x Long Gold ETN (UGLD)

The VelocityShares 3X Long Gold ETN (UGLD) goal is to deliver 3X the daily investment results of the S&P GSCI Gold Index ER, making the fund a cost-effective product for those who want to take a geared Bullish bet on gold prices.

Traders should be aware that returns greater than 1 day may deviate from the advertised leverage due to the effect of compounding. More than 130,000 shares change hands daily, providing ample liquidity for active traders.

However, the ETN’s average spread of 0.06% may be too wide to book mini scalping profits. The fund charges an expensive 1.35% management fee, although this is less important given its short-term tactical mission. UGLD has AUM of $191.04-M and sports a YTD return of 35.42% as of 11 November 2019.

The UGLD share price has also carved out a descending channel over the past 3 months to create high-probability support and resistance zones for actioning trades. Those looking to buy the fund should think about setting a limit order close to the pattern’s bottom trendline at the 124 mark.

In terms of trade management, consider placing a stop order somewhere below 118 and targeting a move up to 140, where price may encounter selling pressure from the channel’s upper trendline and 50-Day SMA.

Chart depicting the share price of VelocityShares 3x Long Gold ETN (UGLD)

Direxion Daily Gold Miners Index Bull 3X Shares (NUGT)

With net assets of $1.58-B, the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) has an objective to return 3X the daily performance of the NYSE Arca Gold Miners Index. The tracked benchmark comprises global gold and silver mining firms that operate in both developed and emerging markets.

Its Top 2 holdings: Colorado-based Newmont Goldcorp Corporation (NEM) and Canadian gold mining giant Barrick Gold Corporation (GOLD) – carry a cumulative weighting of about 22%. Due to the ETF’s use of derivative instruments to achieve leveraged returns, its expense ratio of 1.35% is not cheap. More importantly, dollar volume liquidity of more than $335-M most days, combined with an average 2-cents spread, keep trading costs minimized. As of 11 November 2019, NUGT issues a dividend yield of 0.35% and has gained 50% YTD.

After setting a 52-wk high just above 45 in early September, NUGT shares have retraced within a textbook falling wedge pattern. As global financial markets moved into “risk-on” mode last week, the ETF’s price fell toward a confluence of support from the bullish chart pattern’s lower trendline and 200-Day SMA. Those who buy at current marks should anticipate an upside reversal, with a possible test of the previously mentioned 12-month high at 45.10. Manage risk by positioning a stop order just below 24 and raising it to the breakeven point if price climbs above 50-Day SMA.

Chart depicting the share price of Direxion Daily Gold Miners Index Bull 3X Shares (NUGT)

Stay tuned…

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.