The SPDR Gold Shares ETF (GLD) seems to have broken a head-and-shoulders pattern neckline, and spent several days below that neckline, suggesting that the pattern has been "definitively" broken. Gold's correlation to bonds has slipped a bit. The Chande Trend Meter is below 20, implying trend-following models detect a down-trend. What is the projected downs-side target, and will GLD get there?
Chart 1: GLD the Gold Shares SPDR ETF shows a clear head-and-shoulders pattern, pointing to a down-side target in the 109-110 range. Observe that the Chande Trend Meter is below 20, implying a down-trend, and the correlation to bonds has slipped. Will GLD go down all the way to the target? (A live chart is here.)
Trend Checking Core Markets
I checked my trend-following models against the core markets, of gold, bonds, S&P 500 and dollar. The results are summarized below. The time period starts at 25-days and doubles at each level from top to bottom, reaching 200 days. Gold, in the second column, is trending lower in the short- and medium-term, and is flat in the intermediate- and long-term. Bonds are trending lower in the short-term, but flat in the medium-term, and trending up in the longer time frames. The short-term weakness in stocks has not helped gold. The dollar continues to be weak in all time frames, and remember that gold trading is demarcated in dollars.
Chart 2: Trend-checking the core markets, gold is trending lower in the short- and medium-term time frames, and flat in the longer time periods. Time intervals starts at 25-days at the top and doubles at each level from top to bottom.
Stocks Could Provide Event-Risk Spillover Support
Weakness in stocks could provide a boost to gold as a risk-off trade. However, stocks rallied today after Fed Chair Yellen's testimony to Congress was interpreted as "dovish" by the markets. The SPX has traded sideways after breaking out in late May (see Chart 3), and market internals have slipped in the short- and medium-term, and thus the market remains vulnerable to event risk.
Chart 3: Stocks rallied, removing the risk-off support trade for gold, but the market has moved sideways, and only event-risk could provide spillover support to gold.
A question for all the pattern traders and gold gurus. Is a trip down to 109-100 inevitable for GLD? Only time will tell.
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