We’ve seen massive rallies in stocks, bitcoin and, at least for the moment, gold. On Wednesday, Treasury Secretary Steven Mnuchin made some surprising comments that sent the U.S. dollar lower.
“A weaker dollar is good for us as it relates to trade and opportunities,” he said in Davos, Switzerland. This sent the already-hot SPDR Gold Trust ETF (NYSEARCA:GLD) rocketing, as GLD recorded a fresh 52-week high.
As investors know, one catalyst to higher gold prices — and a higher GLD quote — is a lower dollar. Conversely, a strong dollar is a headwind for the metal. The same can be said for the iShares Silver Trust ETF (NYSEARCA:SLV).
Taking it a step further, a lower dollar is also good for miners. Why? Simply because it sends gold and silver prices higher.
If you’re looking to play the miners over the actual metal, investors can consider VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), VanEck Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) or Global X Silver Miners ETF (NYSEARCA:SIL).
What can we expect from gold prices going forward? While the dollar isn’t the only driver to gold prices, a continued decline will surely add fuel to the fire. Given Mnuchin’s comments, the trend certainly seems to favor a weaker dollar over time.
If that’s the case, where could the dollar go? Here’s a chart of PowerShares DB USD Bull ETF (NYSEARCA:UUP). Essentially, it’s the U.S. dollar ETF. It’s not a perfect measure, but shows that the first wave of support may not be too far away. Should continued weakness ensue, one might expect about 5% further downside from nearby support.
Gold also serves as a safe-haven asset. While equities continue to sprint higher, some may be inclined to put some of those gains into precious metals and the GLD ETF. In the past, there were only a few main major investment vehicles: stocks, bonds, real estate and gold.
But lately, the crypto trade has been so hot that things like the GLD ETF have been overlooked. It’s no surprise — at least to me — that the gold ETF made its recent lows in mid-December just as bitcoin was peaking. During bitcoin’s turbulent run over the past five weeks or so, GLD has been on fire.
Still, it’s unclear whether this trend will continue. While bitcoin has suffered a massive decline over the past month, it’s still up about 10-fold over the past 12 months.
Trading the GLD ETF
Although some investors may consider crypto a new safe-haven investment, I think gold is still the standard. There’s always been an interest in the yellow metal, even when it seemed out of favor at times. Let’s look at the charts.
In the short-term, the gold ETF is overbought, but it’s rally on Jan. 24 was impressive. GLD popped to new 52-week highs and right over what appeared to be short-term resistance. However, it’s got a much bigger task ahead.
Here we have a 10-year weekly chart. The $130 level was previous support back in 2010, 2011 and early 2013. Since mid-2013 though, it’s been stiff resistance. With prices at $128 now, investors might want to think about its limited near-term upside potential. However, on the plus side, the GLD ETF is trending higher (purple line). This trend is no flash in the pan either. GLD first began this trend near the end of 2015, so it’s already been a few years.
Should it decisively break through resistance, look for the $130 level to then act as support. However, if the gold ETF pulls back, look for support near $120. Given that support may be nearby for the dollar, a bounce in the dollar could be what causes the GLD ETF to pullback.
On a correction I would be a buyer. I don’t want to own the GLD ETF right here, but on a breakout or a pullback, I am a buyer.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
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