Trading Gold Pullbacks on Charts (GLD, IAU, PHYS, SGOL, GLL, DZZ, DGZ)

Tuesday’s drop in gold may be a culmination of many things and Wednesday’s attempt at a recovery needs to be watched closely.  Profit taking, China rate hike, currency extremes with reversal, and on and on are all a part of Tuesday’s move.  When you see monumental runs to new highs like we have seen in gold, sometimes there is nothing more important than the charts when it comes to looking for what to do.  When looking at gold, we always look at the SPDR Gold Shares (NYSE: GLD), iShares Gold Trust (NYSE: IAU), Sprott Physical Gold Trust ETV (NYSE: PHYS), and the ETFS Physical Swiss Gold Shares (NYSE: SGOL).

Our technical analysis affiliate is Adam Hewison of INO and he put out some analysis with gold having reached a near-term high.  Since Hewison has been a gold bull since well under $1,000.00 per ounce, we are taking a closer look now that the price of gold has gone up, up and away.  Hewison has a short audio/video chart analysis out that shows the real risks in gold at the current prices even in the short-term.  This might not undo the longer-term trends and might not call for an ultimate peak, but there are risks now that gold came close to $1,400.00 per ounce.  The Fibonacci retracements, show initial downside risks of $1,297, then $1,270 and then $1,242 as the highest retracement.

The trick in technical analysis is always timing.  Gold is currently up $2.00 and challenging $1340.00 per ounce.  Just last week gold hit new highs above $1,380.00 per ounce.  So far the lows hit yesterday have not been breached and those levels need to be watched very closely. As far as what this means for two of the key ETF prices IF those Fibonacci retracements are hit would be as follows (very approximate targets, discount/premium fluctuates):

Of course, there is the other group that would actually stand to benefit here, and that is the class of ‘SHORT” ETFs.  The ProShares UltraShort Gold (NYSE: GLL) is ‘double-short’ as it seeks twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London.  Another double-short ETN is the PowerShares DB Gold Double Short ETN (NYSE: DZZ), and lastly there is the very thinly-traded PowerShares DB Gold Short ETN (NYSE: DGZ).

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JON C. OGG