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Gold Goes Parabolic on U.S. Downgrade

Earlier this year at the end of April, silver and it’s exchange traded funds iShares Silver Trust (SLV) began to launch their booster rockets and go “parabolic” trader parlance for a vertical move upwards. The relative strength index (RSI) during that period peaked around 89. Silver hit all time highs of $50, and created a topping tail or reverse hammer, a very bearish indicator and then swan dived 20%.

GLD - Gold ETF

The fundamentals behind gold’s price action are different but in some ways the same.  Gold has been in a strong uptrend for well over a year now. The reasons for this continuously positive trend are varied, a weakening dollar, fear in the markets etc. New language has entered the lexicon of investors, credit default and debt rating downgrade. These two hugely bearish terms have become catalysts for much fear and panic in the equity markets. The results of which are extremely volatile down days that have erased all of the gains of 2011.

When in fear, people run to the exits (as many have) or they run to safe havens, such as gold.  Over the past six trading sessions, the market has lost nearly 20%. Monday, was the most violent. The price action and volume was often overwhelming even for traders who thrive on volatility, like myself.

SPDR Gold Trust (GLD) has primed its booster rockets and blasted above the long-term trend line. On Monday the GLD rose to record prices in the aftermath of the US sovereign debt downgrade. While the circumstances for this price surge are different, one can’t help but recognize that when a financial instrument is so overbought, gravity eventually catches up to it and often returns it to the from whence it came.

GLD - Gold ETF

SmartStops has the short-term and long-term stops for GLD at $159.94 and $147.73

GLD - Gold ETF SmartStops chart

GLD - Gold ETF SmartStops chart

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