Thursday, GLD popped over the $128 resistance level on the way to potentially building a constructive base from which to launch a new uptrend. GLD will have to surmount several more major resistance levels before one can say that it has turned the corner back up.
Although it is trying, at this time one cannot say whether GLD will succeed. All one can do is say that GLD is in a chart setup that may possibly work out. Therefore, I would set price alerts at the resistance levels drawn on the below chart:
The reasons for the recent strength in GLD are numerous.
First and foremost is the insane monetary easing by the world's central bankers, which has caused numerous asset bubbles all over the world. James Rickards has written about the potential demise of the dollar and the potential for GLD in his recentbestseller, The Death of Money, which takes off where his last book, Currency Wars left off.
Rickards posits that a coming collapse of the world monetary system will be triggered by the irresponsible money printing policies of the world's bankers, including the Federal Reserve.
Second, China and Russia are both trying to replace the dollar as the world's reserve currency. Vladimir Putin and his Chinese counterparts are trying to create a separate Eurasian trading zone that eschews any use of the dollar. The recent gas pipeline deal between Russia and China may be be the first big step to dethrone the dollar as the world's reserve currency. On top of that, Russia and China have recently been pulling their money out of the U.S.
Just like Auric Goldfinger, the famous James Bond villain who tried to blow up the Fort Knox gold supply, Vladimir Putin has taken it upon himself to try to destabilize and wreck the current world order of the dollar being the world's reserve currency. To that end Putin is trying to unite the Eurasian countries starting with China and the former Soviet Union satellite states into one trading zone that does not rely upon the dollar. Recently, Russia, China, India and others have been on a gold buying spree.
Third, in the view of numerous foreign policy experts, President Obama is almost singlehandedly wrecking the entire post-World War II and post-Reagan geopolitical world order by withdrawing the U.S. from participation in keeping peace around the globe. For sure, China and other nations are getting stronger and creating different world spheres of influence that, according to Henry Kissenger, are part of the new world order.
Right now the world appears to be in a state of nervous chaos as new powers emerge and test their spheres of influence around the globe. Examples abound such as the bullying tactics of Russia, China and the new Islamic State, formerly ISIS.
The immediate catalysts for the potential long-term turnaround in GLD are the wars in the Middle East, banking problems in Portugal, bad China trade numbers and the recent Fed minutes that talk about an end to any further quantitative easing after the Fed taper ends in the fall. Toss in the recent official 2.1% inflation figures and we have a recipe for GLD to go up.
Short-term traders can play the strength in GLD off the resistance levels drawn on the above chart. Long-term investors may nibble on gold but should probably wait for a longer term base to be completed and a breakout over the $144 zone to occur. There is plenty of time for a long-term uptrend to be established. As always with chart set ups, if GLD does not break out, nothing is ventured and nothing is lost by not buying GLD.
At the time of publication the author was long GLD.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.