Two ETFs on my monthly shopping list
In last weekend’s article, I talked about the two stocks that I liked the most after my month-end market analysis. Of course, I run the same scan on a large ETF group that I am. Positive monthly signals were seen in a number of gold linked ETFs including the SPDR Gold Trust (GLD) and the VanEck Vectors Gold Miners ETF (GDX).
Many traders and investors believe that a weaker dollar is always associated with higher gold prices, but there have also been times when they have moved in the same direction. Much of this impression comes from the early 1980s. The dollar hit a major low in the fall of 1980, with the election of Ronald Reagan, and gold peaked in January 1980 at $ 850 an ounce. The rally in the US dollar lasted until 1985 and until the Plaza Accord, when the dollar was devalued.
In July 2001, the dollar peaked at 121.21 (point a) and then began a multi-year decline. In April 2008, it had fallen to a low of 73.71 (point b), a drop of just over 39%. During the same period, gold fell from a low of $ 258 per ounce to $ 956.20. This is a gain of 270%. Gold continued to rally until September 2011, when it peaked at $ 1,923.70.
The monthly US dollar chart trended higher from the 2011 and 2014 low (line c) which was decisively broken in December 2020. The January low at 89.17 is now critical support which goes back to the highs of 2009 and 2010. Breaking this level will suggest a drop towards the 85 area, which would represent a drop of around 4.5%.
The SPDR Gold Trust (GLD) monthly chart shows the May close at $ 178.38 was above the downtrend (line a) from the August 2020 high of $ 194.45. For May, the GLD was up 7.7% and the March low of $ 157.13 was just below 38.2% Fibonacci support at $ 158.46 (line b).
Such a minor pullback after rallying $ 100.23 to $ 194.45 is a positive sign. The 20-month Exponential Moving Average (EMA) has increased and stands at $ 162.02. The January high of $ 183.21 is the next major resistance, and a close above that level should confirm a resumption of the major uptrend. The starc + weekly band is at $ 195.20.
Volume increased in May and On-Balance Volume (OBV) increased. It appears to have hit a major low in 2019 when resistance (d line) was overcome. The decline at the end of 2020 brought the OBV below its weighted moving average (WMA). Although it has broken through its recent resistance, a strong close above its WMA is needed to make it positive. The weekly OBV (not shown) has completed its substantive training.
The VanEck Vectors Gold Miners ETF (GDX) rose 15% in May, closing at $ 39.43. This close broke above the strong downtrend (line a). There is the next resistance from the November 2020 high at $ 41.81. The August 2020 high was $ 45.78. The February and March lows retested the old resistance (line b), which is now support in the $ 31 area. The 20 month EMA is at $ 33.22 and is now on the rise.
While the volume was not impressive in May, OBV hit a low in February and has since risen. OBV closed above its WMA in May which is a positive sign. Weekly indicators, like those of the GLD, are positive. A higher close in June should confirm a return to 2020 highs.
Close monitoring of daily charts, pivot levels and 20 day EMAs should identify a good entry point in both GLD and GDX. Check my Twitter for more updates, as the lower close of June 2, 2021 could be the start of the much needed correction.