Gold prices decline more than 6% since January
What you should know about crude, SPY, and gold ETFs after Greece's debt deal delays (Part 3 of 4)
Gold prices drop 6.7%
Gold prices have been declining since January 22, 2015. They dropped from $1,310 per ounce on January 22, 2015, to $1,222 per ounce on February 12, down by ~6.7%.
The Gold ETF, SPDR Gold Trust (GLD), was also down by ~6%. Other Gold ETFs and gold stocks such as the Market Vectors Gold Miners ETF (GDX), the Market Vectors Junior Gold Miners ETF (GDXJ), and Goldcorp (GG) have also declined since January 22.
Gold vs. the US dollar
The drop in gold prices was led by a rise in the US dollar index and US Dollar Bullish Fund (UUP) ETFs. Gold is US dollar denominated, so a rise in the dollar makes gold expensive.
Gold rallied in early January 2015 due to increased currency volatility, concerns in Greece, and expected quantitative easing in Europe. However, the rally was short-lived. Since then, gold has started to decline. An improving US economy and a possible increase in the interest rate in the United States could add to the downward pressure on gold prices.
However, there’s lot of uncertainty in the market. The European Union (or EU) and the International Monetary Fund (or IMF) bailout for Greece expires on February 28, 2015. Greece’s new government doesn’t want to extend its debt and has proposed changes to the bailout obligation. The EU has warned Greece to follow the existing bailout terms. This conflict of interest could delay Greece’s bailout plan and fuel concerns on Greece’s exit from the Eurozone. This political uncertainty could support gold prices.
Traders should be cautious with gold
Traders should be cautious trading gold and GLD. On the downside, gold has strong support at $115. According to the charts, GLD could trade between $115 and $120 unless bearish news triggers a change.
Technical indicators such as the Relative Strength Index (or RSI) and moving average convergence divergence (or MACD) are trending lower. This suggests a possible downside in the short term.
To know more about the fundamental drivers of gold, read Market Realist’s Must know: Key indicators to track gold in 2015.
In the next part of this series, we’ll provide a technical analysis update for the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ).
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