Conclusion, Investment Implications, Strategy

The SPDR Gold Shares (GLD) ETF is amid favorable conditions to resume its February major uptrend amid expanding investor asset flows and relative outperformance versus the S&P 500 (SPX).  A sustained rise above the 176.87 area would target an additional 7% rise to 194.45.  This is an Asbury Momentum trade idea.

Analysis and Rationale

Introduction

In our Feb 8th report, entitled Gold (GLD): Another Attempt At A Rally, we pointed out an emerging buying opportunity in this ETF, which has a very tight and stable positive linear correlation with gold prices.  We exited that idea on Mar 14th for a 7% gain, after which the ETF declined into its Mar 16th lows.  Recent relative performance and asset flows suggest another similar buying opportunity now.

The SPDR Gold Shares (GLD) ETF holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets. According to SPDR, “the investment objective of the ETF is for the Shares to reflect the performance of the price of gold bullion, less the ETF’s expenses. The Sponsor believes that, for many investors, the Shares represent a cost-effective investment in gold.”

Relative Performance

The upper panel of Chart 1 below plots GLD daily since October along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies.  The lower panel plots the corresponding daily relative performance of GLD versus the SPDR S&P 500 ETF (SPY) along with its 63-day (quarterly) moving average, the latter which identifies the Strategic trend of relative performance.

Chart 1

The lower panel shows that GLD is in the midst of a 63-day, quarterly (our Strategic time frame) trend of relative outperformance versus SPY, and retested that trend on Mar 22nd.  This is where that Strategic trend should resume if still valid.

Investor Asset Flows

The upper panel of Chart 2 below also plots GLD daily since October with its 200-day MA.  The lower panel plots the corresponding daily total net assets invested in GLD along with their 21-day moving averages, which identifies a Tactical trend of either expansion or contraction

Chart 2

The lower panel shows that these assets have been above their 21-day MA since Dec 30th, indicating a monthly (our Tactical time frame) of asset expansion — and that this trend was tested and held on Mar 15th.

Combined, these two metrics indicate a relatively low risk/high reward opportunity to buy GLD.

Risk/Reward

Table 1 below shows that, considering a 194.45 upside target (GLD’s August 2020 all-time high) and a protective stop placed below the 176.87 area, a long entry price of 181.45 would provide a 1:2.8 risk/reward ratio (risking $1.00 to make $2.80) with an initial risk of 2.5%.

Table 1


Click Here for a table containing all of our current stock, ETF and index ideas.

Please consult the table showing our Asbury 6 key market metrics to help determine if this investment is suitable for you.