At the end of February, almost two months ago, Fed Chairman Bernanke began to speak and as he did gold began to plunge. The largest physical gold ETF, the SPDR Gold Trust (GLD), lost over 4% of its value that day. Here's the GLD chart from Yahoo Finance to relive that plunge and the immediate aftermath. (click to enlarge)
The decline was not entirely based on what Ben said but about what he did not say. He did not talk about a QE3 effort. Markets reacted to his message by selling off liquidity fueled investments like GLD and have not stopped in general. Here's the same starting point on the chart of GLD above but with a conclusion as of the April 24th close.
(click to enlarge)
Since that initial plunge of around 4%, GLD has lost another 4% as evidenced by the lower right hand corner number in red 8.18%.
So with FOMC meetings concluding Wednesday and Bernanke addressing the media, one wonders the impact he could have on GLD, one way or the other. Below you will find an annotated chart I put together on stockcharts.com. The chart shows GLD and its 100 day moving average over the last five months. In addition, the blue circle illustrates the high before the Bernanke comments and the red circles indicate the lower lows that GLD has been reaching since the decline.
(click to enlarge)
In my view, the most immediate numbers that stick out are the moving average on the upside ($163), and the previous GLD low ($157). These two numbers appear to set up a reasonable range of where GLD could react based off positive or negative comments from Bernanke on Wednesday.
Ahead of Fed comments, GLD traded slightly upward on Tuesday gaining .14% according to GoldETFs.biz. This would seem to indicate markets expect good news. The Gold ETF Volatility Index (GVZ) however finished the day over 3% higher, with a spike in volatility that would indicate there is more concern than the GLD gain indicates. Here's the chart of GVZ from the CBOE showing the spike on Tuesday.
(click to enlarge)
Whatever happens Wednesday, it seems likely that GLD will have a material move. Whether that means that GLD shakes off its Bernanke induced decline or accelerates it, investors across the world will be listening to what is said and deducting what is 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 publishes GoldETFs.biz.
