Gold Trade Was Tarnished

Published on Friday, 02 July 2010 12:59 Written by The Trader Next Door

New York, Jul 2^nd (TradersHuddle.com) – Although Gold futures have been able to hold its ground today by trading higher, the Gold Trade suffered a major technical blow with yesterday’s aggressive move to the downside.

The marquee gold ETF, the spider Gold Trust (NYSE:GLD) lost more than 3.8% by moving from the $121 area back down to $117. Given the slow moves that the GLD usually makes, therefore this type of price action needs to be monitored by traders, as it could potentially mean a further correction ahead, as the GLD took out its 50 day moving average, breaking the coiling / momentum building pattern that gold was developing with the ascending moving averages squeezing the price action against all time highs.

The resolution of the squeeze was to the downside, and unless the GLD is able to get back above the 50 day moving average the GLD “buying” or “demand” might suffer with technical traders not wanting to establish long positions.

If you follow the price action from yesterday the big move in the GLD also corresponded with a big move in the Dollar, which could be attributed to a big position unwind, whatever the reason of the strong move from yesterday is clear that the risk aversion trade is not working in the GLD, as it is only being seen in long-dated Treasuries with 30-year futures up 3.2% in the last 2 weeks. The short end of the curve is stagnant as we see a flattening of the yield curve, which is why many are starting to call a double dip for the economy.

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