Chart analysis: Assessing gold and silver ETFs' recent rally (Part 1 of 2)

Must-know: Will the SPDR Gold Shares ETF hit $133.10?

By Gordon Kristopher Jan 22, 2015 12:49 pm EDT

Introduction

Precious metals like gold and silver are trading higher. The recent rally of gold and silver has reflected in ETFs like the SPDR Gold Shares ETF (GLD ) and the iShares Silver Trust ETF (SLV ).

To learn more about the fundamental drivers of this rally, see Moves by the SNB and ECB could impact precious metal investors . The fundamental drivers gave mixed signals on the direction of gold and metals, as we covered in that series. But what are the charts saying?

The SPDR Gold Shares price movement

Gold prices have increased

11% from the November 2014 low of $1,169 to $1,298.40 on January 21, 2015. The rise was likely on the back of increased currency volatility worldwide and expectations of quantitative easing from the European Central Bank (or ECB).

The performance of gold mirrors the largest gold ETF, the SPDR Gold Shares ETF (GLD ). Other ETFs and stocks, like the Market Vectors Gold Miners ETF (GDX ), the Market Vectors Junior Gold Miners (GDXJ ), Goldcorp (GG ), and Barrick Gold (ABX ) also gained.

Upward short-term trend

The above chart shows that the GLD ETF has broken out of an inverted head and shoulder pattern in GLD ETF prices on January 15, 2015—the day the Swiss National Bank removed the exchange rate cap to the euro that it introduced a few years ago. A breakout of the neckline generally leads to a reversal from the previous downtrend.

Given the breakout, the GLD ETF could hit its next resistance level of $127.50, which is what GLD ETF prices averaged in 2014. Expectations of quantitative easing from Europe and uncertainty surrounding Greece’s political environment remain positive for gold and ETFs like GLD in the near term.

Note that prices may rise above $127.50 and hit the next resistance level of $130. However, without further bullish catalysts, prices could retreat after hitting resistance. At the moment, we see support levels for the GLD ETF at around $120 and $117.50.

The relative strength index (or RSI) is rising towards overbought levels. After reaching that high, overbought-level prices could fall. Yet the moving average convergence divergence (or MACD) signals that gold could trade higher over the short term.

Long term

From a long-term view, the GLD ETF remains in a downtrend, trading in a falling channel. The last two times the GLD ETF hit the lower part of the range, it bounced up to hit the upper part of the range. Since hitting the lower end of the channel, prices have bounced. So the GLD ETF could hit the upper part of the range—at

$128.

A rising MACD differential—marked by the green color in the chart above—also shows bullish signs for gold in the short term. However, you should be aware that the long-term trend hasn’t changed its course. As the RSI inches closer to the territory widely considered “overbought,” prices could fall.