Market Technician Lays Out An Important Level To Watch In Gold

Gold surged in value throughout Friday's trading session while stocks were hard hit. Should this trend continue, it will serve as an ultimate test for stocks, according to Piper Jaffray.

The Analyst

Piper Jaffray chief market technician Craig Johnson and Susquehanna market strategist Stacey Gilbert.

The Thesis

The price of one ounce of gold was trading slightly higher Monday morning at $1,333.49 on top of a strong performance last week. But the price of gold needs to break above the $1,365 mark before thinking it's starting a "new leg higher," Johnson said during Friday's CNBC "Trading Nation" segment. If the commodity does break above the key level, however, it would be seen as a "real negative event" for the overall market.

The negative surrounding stocks is the economy is growing and aided by tax cuts, Johnson said. But gold's next leg higher would be seen as a "defensive move" as gold historically outperforms stocks only when there is "excess fear" in the market.

Meanwhile, gold itself is showing no signs of "significant fear," Gilbert added. There's no volatility in the gold options market, which may imply that investors are merely looking at gold right now as a "just in case" alternative to stocks and a major sell-off in equity is not highly anticipated.

"We are starting to see money move into gold but, amazingly, with the volatility in the market… gold actually hasn't responded as positively as you would expect if there were true market fear out there," Gilbert said.

Price Action

Shares of the SPDR Gold Shares GLD ETF were trading nearly flat Monday at $126.32.

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Posted In: Analyst ColorCommoditiesTop StoriesMarketsMediaCNBCCraig JohnsonGoldgold pricesPiper JaffraySusquehannaTrading Nation
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