with gold bullion trading near breakeven levels on Wednesday, have the overbought conditions in many bullion-based exchange-traded funds shown any signs of relenting?
Shares of SPDR Gold Trust ETF (NYSE: GLD) closed higher for three days in a row heading into trading on Wednesday, and finished essentially flat in Wednesday’s session. The ETF slipped back into bear market territory in early March, but has been trading consistently below the 200-day moving average for only a little over two weeks.
Recent strength has earned the fund a negative edge in the short-term of nearly 1%, suggesting that traders and active investors looking to add gold exposure by way of the GLD may be able to do so at lower prices over the next few days.
Also climbing toward levels where traders historically have looked to take profits – or even sell short – is the iShares COMEX Gold Trust ETF (NYSE: IAU). Shares of IAU were also on a three-day winning streak as trading began Wednesday morning, finishing in overbought territory below the 200-day moving average on Tuesday. Like GLD, IAU has spent only a few weeks back in bear market territory, the result of aggressive selling at the beginning and end of March, but may be due for a short-term pause, even after the stock’s breakeven trading on Wednesday.
Another example of the short-term overbought character of the gold market is the ratings downgrade for the leveraged DB Gold Double Long ETN (NYSE: DGP). Shares of DGP began trading on Wednesday with neutral ratings of 5 out of 10, earned an intraday two-point downgrade to a “consider avoiding” 3 out of 10, before ending the day back with neutral ratings. The ETN has now finished overbought for back to back trading days.
Note that while the gold bullion based ETFs such as those in today’s report are trading overbought, the gold miners themselves remain in neutral territory, at best. Shares of the Market Vectors Gold Miners ETF (NYSE: GDX) reversed in Wednesday’s session and are actually trading just outside of technically oversold territory (albeit below the 200-day moving average). The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), also trading in bear market territory, finished in neutral territory with an oversold bias ahead of trading on Thursday.
GDX has a positive edge in the short-term of more than 1%, and both GDX and GDXJ have neutral ratings of 6 out of 10 and 5 out of 10, respectively.
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David Penn is Editor in Chief of TradingMarkets.com