Short Trade Idea: SPDR Gold Trust ETF

10/20/2017 2:29 pm EST

Focus: COMMODITIES

Landon Whaley

Editor, Focus Market Trader

As long as GLD trades below $128.17, then you can consider new short positions when it shows strength. Depending on your entry price and how much room you want this trade idea, use a risk price between $124.73 and $128.17, suggests Landon Whaley of Focus Market Trader.

The SPDR Gold Trust ETF (GLD) declined 1.5% in the week ending October 20, but still has gained 11.6% for the year.

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Goldman Sachs released a report last week on gold that suggests gold can be used as a hedge against “tail risks.”

I’ve honestly never understood the thought that gold could provide protection during crisis or upheaval.

During 2008, gold gained just 2%, but experienced a 30% drawdown. What’s more, during the stretch of time that destroyed the most wealth in the Financial Crisis, from August 2008 to November 2008, gold lost 10% and experienced a 22% drawdown. Is that the kind of hedge you’re looking for when it hits the fan?

Gold didn’t even hold up well during Brexit. Sure, it gained 8% in the week following the Brexit vote, but then it nearly entered crash mode, declining 18% over the following six months. Again, are those hedge-worthy stats?


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“Tail risks” don’t drive the price of gold, the Fundamental Gravity drives the price of gold. Right now, the 3-headed U.S. hydra (growth up, US dollar up, US yields up) is driving the price of gold down. This is why since the hydra began rising on September 8, gold is down 4.4% and has experienced a maximum drawdown of 5.8%.

Against this Fundamental Gravity backdrop, I’m sticking with my short bias and looking for an opportunity to initiate this week’s trade idea.

Trade idea:

As long as GLD trades below $128.17, then you can consider new short positions when GLD shows strength. Depending on your entry price and how much room you want this trade idea to move, use a risk price between $124.73 and $128.17

Once initiated, close all open trade ideas if GLD opens, or closes, above your risk price. That said, your risk price “line in the sand” is that $128.17 level. If GLD trades above that price, even for a second, then promptly close all open trades.

If this short trade moves in your favor, then you could consider using the area between $119.08 and $116.23 as your spot to take profits on some or all your position.

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