It's here! The security gold bugs had been longing for. But the anticipation that I, and many other traders had for the new StreetTracks Gold Trust (NYSE:GLD) $44.38 ETF isn't what many had hoped for. At least not from the trader's perspective.
In a June 22, 2003 Ask the Analyst column titled "A new security to grab a gold bugs attention," we reviewed the World Gold Council's proposal of a new ETF that would allow investors and traders to actually get some exposure (long or short) to gold bullion, without having to actually take physical possession.
I was disappointed to learn that the Internal Revenue Service (IRS) has decided that despite the StreetTracks Gold (GLD) being a security, any taxes paid will fall under the IRS's "collectibles" tax-rate of 28%, and not the potentially lower tax rates stock investors and traders have become accustomed to.
So before you trade this long-awaited security, check with your tax professional, especially you active traders, as the StreetTracks Gold (GLD) might not be suitable for everyone.
I can only imagine that one of the reasons it has taken so long for the World Gold Council-sponsored ETF to finally come to market was that the WGC wanted it to be taxed as a capital gain or loss, not a collectible.
According to the New York Stock Exchange, investors bought an estimated $550 million in the StreetTracks Gold Trust (GLD) $44.38, where this trust will now hold that amount of gold bullion.
Today's offering may well have had some impact on the AMEX Gold Bugs Index ($HUI.X) 239.37 -2.35%, as this non-weighted EQUITY index fell, while Spot Gold in New York $442.10 -0.52% as well as December Gold Futures (gc04) $442.20 -0.15% traded fractionally lower.
If you get the feeling, based on observation, that gold bugs decided to move toward the commodity itself, which provides more of a "true" hedge against inflation, or dollar weakness, then today's trade makes some sense as discussed in the June 22, 2003 Ask the Analyst column.
With the StreetTracks Gold Trust (GLD) reflecting the underlying value of gold bullion, traders and investors can use Stockcharts.com's Continuous Gold ($GOLD) point and figure chart, to get a feel for supply/demand of this commodity-based ETF, as if it had been trading for months!
Continuous Gold Contract ($GOLD) Chart - $2 box
Most institutions will view gold prices on a $2-box chart, show that's what we're looking at above. You can see it gives some very choppy trade, but I'll still use it to at least try and establish some type of trading target, see if it "makes sense" with other observations (dollar, Treasuries, junk bonds, and gold equities). Right now, a GLD trader/investor would equate the current bullish vertical count ($462) in the above $GOLD chart with $46.20. After a powerful triple-top buy signal at $432.00, near-term support for the GLD would be assessed at $43.20.
AMEX Gold Bugs Index ($HUI.X) - 4-point box
Most institutions will view the 4-point box of the $HUI.X, and while gold itself has broken above its January/March highs of $436.50, the $HUI.X is lagging that type of relative strength price action. Why? Probably because of the dollar weakness, where the STOCKS in the $HUI.X will largely have to be purchased with U.S. dollars, and when they're sold, will also be equated with what the dollar has done. You can see some of the "loss of hedge" that gold itself provides against a currency.
I've noted in past bullish gold commentary the Newmont Mining (NYSE:NEM) $48.63 -1.84%, which trades just off its January high of $50.20 is the way I like to trade bullish/bearish in gold.
With Dorsey/Wright and Associates Precious Metals Bullish % (BPREC) now rising to a higher level of bullish risk, but still VERY strong at 70.55% (tonight's reading), I think bulls should be looking for some pullback entries. I'm probably going to get some Newmont (NEM) called away tomorrow as I had written some November $47.50 covered calls against the underlying in late October, as I thought NEM would stay under that level, with the HUI.X under 244.00.
In a "bull confirmed" environment, those triple-top buy signals are powerful aren't they?
Market Snapshot/Internals - 11/18/04
While today's first day of trade for the StreetTracks Gold Trust (GLD) was perhaps the top story for Index Traders, it was the Semiconductor Index (SOX.X) 445.64 +1.32% powering higher after another terrible quarterly earnings report from a bellwether that should grab investor's attention. While Applied Materials (NASDAQ:AMAT) $17.65 +1.78% has some formidable resistance ahead at $18.00, and is not a stock I'm crazy about from the long-side, bulls will most likely want to focus on the chip-makers, which will usually lead a cyclical recovery. Remember the equipment makers are DEPENDENT on the chip makers for their future.
After getting my head handed to me on some covered calls in the Semiconductor HOLDRs (AMEX:SMH) $34.80 +1.45% this week (see my Market Monitor profiles) I think I'm back on trend with the semis.
After achieving "bull confirmed" status on Friday at 34% bullish, Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEM) has inched up to 38.13% as of tonight's close.
U.S. Market Watch - 11/18/04 Close
Stocks treaded water for the better part of the day, but got a late bid to their close with the SOX.X and Oil Service (OSX.X) holding the top spot among sector winners. I discussed the Pharmaceutical Index (DRG.X) where finger-pointing at the FDA's may have bulls avoiding the sector on the thought that the FDA has to become even more stringent in how it approves new drugs, and reviews drugs currently available to consumers.
Pivot Matrix -
Whenever I see a plethora of buy or sell program premiums, and little movement from the major indices, I sense pressure building.
While the major indices have gone nowhere this week, the U.S. observed Thanksgiving week tends to be very bullish, especially toward the Wednesday close, and trade-shortened Friday (11/26/04). Nobody's sure why this is, but after having been a broker and consulted for Merrill Lynch, the tendency is for the big money managers (mostly buy side) to do most of their selling/fine tuning the week prior to Thanksgiving, and sometimes early in the Thanksgiving week (Monday or Tuesday) then turn the easy decisions over to their assistants as the big guns get an early start on a four or five-day Thanksgiving weekend. The assistants are usually given the instruction... "don't mess anything up," and a rather bullish bias takes hold.