Buy Signal Flashing for Gold Bugs

Losing streaks of this magnitude have marked opportune entry points to buy shares of the SPDR Gold Trust (GLD)

Mar 10, 2017 at 10:04 AM
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Amid sky-high expectations for a Fed rate hike next week, gold futures just suffered an eight-day losing skid. As such, shares of the SPDR Gold Trust (GLD) exchange-traded fund (ETF) wrapped up their seventh straight loss on Thursday, marking the longest such streak since October 2016. However, previous losing streaks of such magnitude have translated into "buy" signals for the gold ETF, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

After previous losing streaks of at least seven days -- there have been nine since GLD started trading in 2004, the first of which occurred in 2006 -- the ETF went on to average stronger-than-usual returns. One week after the streak, GLD was higher 0.43%, on average -- more than twice its anytime one-week return since 2006. The data gets even more impressive going out to a month, at which point GLD averaged a 4.32% gain, and was higher 88.9% of the time! That's compared to an anytime one-month gain of 0.73%, with a 55.1% positive rate.

GLD losing streaks since 2006

GLD gold ETF returns after losing streaks

Further, in the wake of its slide, GLD finished the past two sessions beneath its lower Bollinger Band. This has been one of the best "buy" signals in the past year, according to White, with the underlying shares up 66.1% of the time one month after a breach of their lower Bollinger Band.

Plus, while there is seasonal risk, "gold has performed well after large speculators bailed ahead of this year's advance (per Commitments of Traders data)," Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook. "This group has tiptoed back into the yellow metal in recent weeks, but there is plenty of room for further capitulation to the bull camp." As such, traders should "consider exposure to gold or gold-mining call options," and SPDR Gold Trust (GLD)  certainly fits the bill.

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