The time of Gold shinning is coming to an end according to trader, Todd Gordon. On Tuesday during CNBC’s ‘Trading Nation’, Gordon explained there are two reasons he believes in the shortening of gold. One being the inverted relationship to the U.S Dollar. When comparing a chart of the gold-tracking ETF GLD to the dollar-tracking ETF UUP, Gordon described that there has been four separate times this year where UUP descended, and GLD rallied.
The dollar is currently rallying to a three-week high, which leaves Gordon to believe that this relationship will sustain and remain to direct GLD in lower direction.
Aside from GLD’s relationship with the dollar, the chart of GLD doesn’t look all that promising. GLD has recently fallen back to a support level at $122 from its previous highs of this year. Gordon pointed out it could even fall through that level as the dollar rises.
“Resistance was broken, you flipped to then act as support, and support so far has held at this decision level,” he said. “But we’d expect the market to move higher from this support level, and that’s not happening.”
To determine how far GLD could potentially fall, Gordon looked back to December of 2016 and drew an ‘uptrend support line’ connecting the two lows over the last year. Because of this, Gordon thinks GLD may decend beyond the $120 level.
Therefore, Gordon anticipates purchasing November monthly 122-strike put and selling the November monthly 118-strike put, paying about 95 cents per share, or $95 per options spread. If GLD were to close below $118 on Nov. 17 expiration, Gordon then could profit a maximum $305 on the trade.
Gordon stated if GLD begins climbing higher he would like to find an exit for the trade before he loses the entire $95 he paid to put it on. “If the 95 cents in premium we just laid out in the debit spread gets cut in half, call it about 47 cents, it’s time to cut the trade”.
On Tuesday, GLD fell 1 percent most likely due to the climb to 93 in the dollar index.