Gold prices have soared nearly 7% over the past 30 days thanks to a 2.59% decrease in the U.S. dollar index and a 27.2% increase in the CBOE Volatility Index over the same time frame. The North Korean crisis and other political risks have led to a spike in volatility, which has increased demand for gold as a safe-haven asset class. Meanwhile, the declining U.S. dollar has helped boost gold prices, as the precious metal is priced in dollars.
From a supply and demand standpoint, demand for physical gold rose to 1,895 tons during the first half of the year, which represents a 17% increase over the prior year. The increase in demand was offset by a 138-ton surplus during the first six months, despite supplies shrinking 5% to 2,160 tons. Chinese demand fell about 7%, but Indian demand nearly doubled ahead of a 3% tax implemented on July 1, 2017. (See also: What Drives the Price of Gold?)
From a technical standpoint, GLD rebounded from the 50-day moving average at $119.11 toward R1 resistance at $122.80 and upper trendline resistance. The relative strength index (RSI) has reached overbought levels at 69.40, while the moving average convergence divergence (MACD) remains in a bullish uptrend. Traders should maintain a bullish bias on the gold fund over the near term given the strong momentum.
Traders should watch for a breakout from upper resistance levels to $124.86 or a move to prior highs at $130.00. A failure to break out from these levels could lead to a move back down to trendline support at around $115.00. Traders should keep an eye on ongoing global political risks as a catalyst for GLD to break out from its year-to-date price channel. (For more, see: Will Gold and Gold Miners Break Out?)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.