Gold Oversold: Will Mini-Capitulation Lead To A Rally?

The SPDR Gold Trust Shares ETF (GLD) has stabilized over the past week. This might not sound like much, but could be very important as prior to this calmness, GLD was in a mini-free fall.

Whether this is just a pause in the downtrend or a market that is ready to put in at least a counter trend rally is difficult to answer. However, I am betting on a rally from here based on some key technical and sentiment related data.

The market is once again extremely oversold on the daily chart (RSI of 23) and is just reaching oversold territory on the weekly. There was clear evidence on a mini- capitulation, which can mark at least a short-term low. There is absolutely no chart resistance between current levels and the 110 region for GLD because the market fell so quickly recently. Market sentiment is down near the levels seen in July 2013, which led to an 8-week, $170/oz. rally. And commercial hedgers (smart money) have raised their net gold futures positions to the highest level since, late 2001. At the same time, large speculators (dumb money) have reduced their net futures position in gold to the lowest level in almost two years, while small speculators (dumb money) have their lowest net gold position since November 2014.

Below is a daily chart of GLD highlighting the mini-capitulation and oversold readings.

SPDR Gold Trust (GLD) Chart

Thanks for reading and have a great weekend.

Twitter: @MarkArbeter

Author has a position in related long gold ETF at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.