Gold ETF (GLD) Approaching Test of Major Resistance

By Jim Donnelly, Olson Global Markets

Although it has been going up steadily for a long, long time, a test of major trend line resistance appears to be at hand for GLD, the largest gold ETF. With the rhetoric over the budget deficit as well as the debt ceiling finally at “center stage”, this GLD test might itself become a referendum on the believability of this country’s resolve to address the big White Elephant sitting in just about everyone’s living room.

From a technical point of view, GLD is about to test key long-term upward sloping trend line resistance, which currently sits at $146 with overbought conditions clearly present. In addition, the “commitment of traders” report suggests that net open positions for “small traders” are rising, but falling for professional “commercial hedgers”. This set-up usually suggests that speculation is running high for less sophisticated traders.

Nevertheless, a solid break above $146 would be an impressive sign of strength and would likely be accompanied by another decline in the U.S. Dollar Index (DXY). It might also suggest that Fed Chairman Bernanke’s monetary expansion efforts may not even be close to being over. The failure to “break” above it, however, might be the pause that refreshes at a time when global traders, central bankers and institutional investors are focused on the debate that is about to emerge in Washington over difficult policy decisions that have got to be made.

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