Gold: Double Bottom Or Double Trouble?

The price action of the SPDR Gold Shares (GLD) over the last several weeks has been a big concern in the national media and with individual investors' portfolios. Everyone has been quick to weigh in on their conspiracy theories, predictions and fundamental policies for owning the yellow metal. Some people own gold for its inflationary protection, some own it for its currency qualities, and others own it as a stalwart investment vehicle. However, I always focus on gold more from a technical perspective to take the emotion out of trading and view the investment landscape through a clear lens.


As I look at the chart of GLD over the last 12 months you can see that it peaked in October 2012 and has been on a slow trajectory downward ever since. The high to low over this time frame was -24.36%, which is a bear market in itself. The quick snapback recovery since the April 2013 lows was quickly tempered by a renewed downward slog and we are once again approaching these lows.

The question I would pose is: Will this latest move in GLD create a bullish double bottom from which a renewed up-trend will emerge or will gold pierce through that prior low and give the bears something to tear into?

That question will be answered in time, but my initial inclination is to watch for GLD to bounce off of the $130 area of support. A longer term 3-year chart shows that gold experienced a similar base in this area back in 2010-2011. The real key to watch will be the volume and price action that we experience as we approach these levels. The April low saw a tremendous spike in volume as investors shed their precious metal holdings and stop losses were hit along the way. If gold was to repeat that same spike down on huge volume then I would be very hesitant about its prospects for the remainder of the year.