GLD: Breakout Ever So Close, How I Am Trying To Exploit It

seekingalpha2024-08-15

I provide a unique take on gold, focusing on GLD ETF.GLD offers a cost-effective way to hold gold and potential for profit opportunities.I am cautiously optimistic about a potential breakout in gold ...

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Some are clearly biased, like the folks whose business it is to sell gold bars or coins. If I ever heard one of them get bearish on the \"yellow metal\" I'd be floored…","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"GLD：突破如此接近，我如何尝试利用它","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GLD":1,"UGL":1,"PPI":1,"SPY":0.9,"FDN":0.9,"IVV":0.6,"SSO":0.6,"SPXU":0.6,"SH":0.6,"SDS":0.6,"OEX":0.6,"OEF":0.6,".SPX":0.6,"ESmain":0.6},"content_text":"I provide a unique take on gold, focusing on GLD ETF.GLD offers a cost-effective way to hold gold and potential for profit opportunities.I am cautiously optimistic about a potential breakout in gold using options on 2X gold ETF for trading opportunities.Anthony Bradshaw As a market technician for 44 years, who has applied that science and art form to stocks, ETFs, options, the price of commodities, and even sports statistics (baseball batting average for a player over time, for example), when it was suggested I update my take on gold, I had two reactions: 1. The last thing the world needs is another opinion on gold. After all, the web, social media, and late-night TV commercials on cable are full of it, so to speak. Full of what? Opinions on gold. Some are clearly biased, like the folks whose business it is to sell gold bars or coins. If I ever heard one of them get bearish on the \"yellow metal\" I'd be floored… and they'd likely be fired. 2. However, a large number of views is what makes a market. So when I opine on things like gold, I try to do so in a way that potentially breaks new ground. So as part of that little project, I challenged myself to use both my technical and quantitative geekness to try to produce something that would be a fairly unique take on a ubiquitous subject. Because no matter how lightly I approach my own portfolio's use of gold (it is a trading tool, if anything), the fact is that it is an extremely popular subject across investor types. Even among the cryptocurrency crowd, gold is sometimes thought of as the predecessor. That makes sense since in both cases, they are only worth what someone will pay for them. And, they tend to be priced largely based on future speculation about where that price will be. That's what happens when you have a limited amount of something (a commodity) and it has sparse value outside of a \"store of value.\" That is, gold is not something that drives the industrial economy. Perhaps there's a bit in some mobile phones and other devices, and the jewelry market is an obvious use case. But unlike when we write about stocks or bonds, or even most other commodities, gold is, well, just a thing that has had critical importance for centuries, based on its perceived, not intrinsic value. GLD: what it is, why it is important to know about, even if you don't care for gold Essentially, SPDR® Gold Shares ETF (NYSEARCA:GLD) is an ETF that allows investors to hold gold as a portfolio asset in their brokerage account, without holding gold physically. The fund itself, which dates back to late 2004 and is the dominant asset-gatherer in the gold metal peer group, simply aims to reflect the movement in price of gold bullion. And it is a cost-effective way to do that, particularly if like me, you typically only consider gold to \"rent\" it, not to \"own\" it long-term. That may change for me, but liquidity is key to my own investment work, and GLD offers that. More on that later, regarding the options market surrounding GLD. Eureka! I struck a gold chart that might matter! So here's a little nugget I dug up (OK, no more gold and mining analogies, promise!). Here's what I see when I chart GLD, the ETF which is the subject of this article, versus the S&P 500 ETF SPY). I went back to 2006, not long after GLD debuted, on its way to becoming the largest gold metal ETF. In fact, at one point in its history, it was reported that GLD might actually have in assets under management more gold than actually existed physically on the entire planet. That has not been a buzz-worthy topic for a long time, but it does remind us that even in the battle-tested world of ETFs, liquidity and knowing what you own is important. The chart below shows the amount by which GLD outperformed or underperformed SPY on a 1-year rolling basis, with the \"window\" moved monthly. So that gives me a big sample size, enough to see some trends. The second chart in this pair below is the same information, except that instead of showing, for instance, that gold outperformed the S&P 500 by about 2% over the past 12 months ended July, it shows the degree to which GLD and SPY correlated with each other. Data by YCharts My takeaway from the first chart is that GLD and SPY have a relationship that has produced wide swings in their relative returns at times. That makes GLD a decent diversifier to SPY. Beyond the scope of this article, but worth a try for someone to do, is to see if there were a long-term trading system involving allocating to SPY and GLD, perhaps with the commitment to own both at all times, but to favor one over the other, by a little or a lot depending on the signal. If enough folks suggest it in the comments, I'm game to try it. For this article, I am really intrigued by that lower chart of the two above. Why? Because the correlation between GLD and SPY has rarely been higher. In fact, only back in late 2011 and early 2012 was it this high. This is what happened around that time, in the time immediately following that high correlation period like the one we have today. Both GLD and SPY surged in price (left side of the chart) and then GLD sunk while SPY continued on through several years of blissful returns, post-financial crisis from 2007-2009. Data by YCharts This helps me put GLD in the context of its own history versus the stock market, which is a much bigger focus for me. As noted earlier, my interest in GLD is primarily for shorter-term profit opportunities, long or short, using this ETF, its top peer IAU, or even a 2X or 3X leveraged bull or bear ETF related to gold. Here's a table comparing four of them. Seeking Alpha GLD is so valuable to traders because of its option liquidity. It is immense, making it, dare I say, the \"gold standard\" in gold options trading. See below, first the open interest and other data for options on IAU, and then GLD below it. GLD's option market size dwarfs it. OptionCharts.io OptionCharts.io So we have an unusually high period of correlation between SPY and GLD, but that is what just happened. What happens next, and how am I using GLD and related securities? Carefully! I am just not a \"gold bug,\" but I am a capitalist, and gold close to an all-time high price is enough to get some volatility going around it. GLD, as shown below, actually is poised to potentially bust out to the upside. The traditional, obligatory headlines are blaring, such as this one I saw today from the newswire: Gold Falls Off Tuesday's Record Close as a U.S. Inflation Dip Firms Expectations Interest-Rate Cuts Are Near And this later in the story: The data follows Tuesday's release of the July Producer Price Index (PPI) which also showed a lower than expected rise, firming market hopes the Federal Reserve will begin to cut interest rates at the September 18 meeting of its policy committee. Lower interest rates are bullish for gold, lowering the carrying cost of owning the precious metal. So sure, there are fundamental reasons for gold to rise. But to me, the time is better spent figuring out how to exploit whatever move occurs, since gold is currently \"trapped\" in a range as shown below. Action items: start with a trade, hope for an investment So my bottom-line view on gold is that odds favor a breakout to new highs, and by more than just a bit. However, that's a meaningless view until it happens. This is the challenge and will be the challenge, for investors in markets that are so much more driven by technical levels and algorithms than they used to be. Especially around commodities, and especially around one of the nature of gold. Here's what I am looking at technically. Reasons to be bullish, but just as much chance that nothing could happen to make GLD a better alternative than a lot of things I see in equities and fixed income (with rates potentially moving even lower). TC2000 (Rob Isbitts, Sungarden Investment Publishing) Back in early April of this year, I wrote about gold and noted that my \"weapon of choice\" was the ProShares Ultra Gold ETF (UGL), which is one of the four in the comparison box further up in this article. It is currently the only form in which I own gold. A small position, but to use an old movie title, I am a \"crouching tiger, hidden dragon.\" Gold and GLD ran up quickly this past spring everyone got excited as \"new high\" headlines ensued. Yet, all GLD had done was tease long-term investors by spending a decade (shown below) accomplishing exactly what T-bills did during a Zero Interest Rate Period (ZIRP). Data by YCharts But there may be something different this time around. That technical chart shows that GLD is in a tight trading range after taking a breather from a pair of strong up moves. The very long-term chart (not shown) shows me that another leg up is a strong chance. \"For Extra Credit\": how I am using options on a 2X gold ETF to risk a little and possibly make a lot (Note: I added this section so as to distinguish between my \"investment view\" of GLD and its breakout potential and my \"trading view\" which is what I often do before committing serious capital to what could be a longer-term idea). Ah, but the technician in me needs a bit more \"evidence.\" So how am I approaching it, given that I own UGL in small size currently? The same way I \"play chicken\" with different markets when they look poised for a big breakout, but just are not there yet. Specifically, I use the very least amount of capital possible, an amount I am willing to lose 100% on (so a fraction of 1% of my portfolio). And I don't even own UGL the ETF. I own call options struck at $90, expiring in 5 weeks on 9/20/2024. That's how I dip my toe in the water. Data by YCharts UGL is a 2X leveraged ETF, and of course, all the usual disclaimers apply. I cannot emphasize enough how small a position this is. But if GLD breaks out, I expect to pocket some profit and take a fresh look at an intermediate-term position in GLD, at a more noticeable size. And again, that options market liquidity is a nice companion or surrogate, even if I ultimately decide to be truly bullish on gold.  Best case scenario: UGL spikes to $100 within a month, which would imply about a 10% burst higher in GLD. I paid just over $2 a contract for UGL, so that would be worth at least $10 at that point, more if the \"pop\" in gold occurred well before expiration. Worst case scenario: I lose a fraction of a fraction of 1% of my portfolio (frankly, I own those UGL calls in a side trading account, off the \"main road\" of my portfolio).","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.2","shortVersion":"4.30.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2459221364"}