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The GLD ETF, also known as the SPDR Gold Trust, is the first physical gold ETF in the U.S. and the largest gold ETF in the world. At over $69 billion in assets it has become a common reference point for the price of gold worldwide. Recently however, three troubling data points have emerged that appear to indicate rough waters for GLD in the near term. Before we examine these three red flags, here's a snapshot of the GLD ETF summary from GoldETFs.biz:

Click to enlarge

gld etf

Recent price activity in GLD has displayed two major breakdowns in GLD's price movement relative to its moving averages including the 50 day and the 200 day. These averages have been a reliable indicator of GLD's longer term valuation trends relative to its daily price fluctuations. Over the last two years dips below the moving averages have been buying opportunities and significant peaks above the averages have led to declines in the shorter term. Lately however two concerning behaviors have emerged.

50 Day Moving Average: Lower Lows

Here's an annotated two-year chart of the price of GLD and its 50-day moving average, composed from stockcharts.com:

Click to enlarge

gld etf 50 day moving average for 24 months

The blue circles represent declines below the 50 day moving average for GLD over the last two years. Note that from the first blue circle going forward, each decline is at a higher point versus the previous until the decline in December 2011. This decline is lower than the previous October violation of the 50 day. The lower violation was a significant disruption of GLD's previous pattern over the previous three violations since April of 2010.

GLD is once again below the 50 day today. It made a minor run upward toward the 50 day recently but has lost momentum again as evidenced by the blue arrow on the chart. The question is, could GLD be heading for another violation that hits a new low, similar to December 2011? If so, GLD priced at $161 today would have to head below the $150 mark. That would mean around a 7% decline from current pricing, evaporating all of GLD's gains for the year and pushing into the red. Here's the performance grid breakdown for GLD over a variety of time periods from GoldETFs.biz.

gld performance

200 Day Violation Frequency Increasing

Stepping back a further to the less sensitive 200 day moving average, we see a picture that is a bit more attractive. Here's the two year chart on GLD from stockcharts.com:

gld etf 200 day moving average

The 200 day moving average is kinder to GLD as it lessens the sensitivity of the moving average. However a different, and perhaps more significant warning, emerges. GLD has now violated its 200 day moving average four times since December of 2011. In the previous 20 months, it had not done so at all. Although the most recent violation is only slight, this behavior and frequency over the last four months is notable.

GLD ETF Volatility Trending Lower

Finally, it's important to not only consider price and the moving average of the GLD ETF, but also the volatility of it. GVZ is the CBOE Gold ETF Volatility Index which uses the same methodology of the popular VIX Index, but using the GLD ETF instead of the S&P 500. Here's the one year monthly chart of GVZ with a 20 day moving average overlay. This chart is from the CBOE GVZ microsite.gld etf volatility 12 month chart

A quick examination initially appears to show some good news for GLD - volatility has been dropping. In the past year's worth of data, it appears that higher volatility set up eventual declines in the price of gold. The most recent trend, since the spike over FOMC comments at the end of February, has been a steep decline in GVZ. While this could be good news, more volatility seems to be what gold could use right now. A flare up of geopolitical tensions, poor economic data or deficit issues in the U.S. could be potential catalysts for upward volatility. Thus it seems like the current trend of lower volatility is actually more of a negative versus a positive for GLD.

GLD ETF Conclusion

The GLD ETF has been showing some cracks since late 2011. Its recent price performance relative to moving averages and decreased volatility is worrisome. It appears positive economic data and strong stock markets returns have taken some of the shine off GLD. Whether this will lead to a serious price breakdown of GLD will remain to be seen. In the short term, caution appears to be prudent as future buying opportunities on GLD seem to be more likely than not.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Christian Magoon is the publisher of GoldETFs.biz.

Source: GLD ETF: 3 Red Flags To Consider