Gold ETFs on Verge of Major Breakdown (GLD, GDX, GDXJ)

The price of gold is falling once again today, down 1 percent in early trading to the lowest level since February. Leading today’s sell-off are the numbers out of China regarding the precious metal. Chinese net imports of gold from Hong Kong fell to 67 tons in April, much lower than the 85 tons in March. This is the lowest monthly number since February 2013. Analysts believe that Chinese banks are already sitting on large amounts of gold after going on a buying spree in 2013.

According to the Commodity Futures Trading Commission, in the week ending May 20 hedge funds and money managers cut their bullish bets in gold and went as far to establish short positions in its sister metal, silver. In the past gold has been viewed as a hedge against geopolitical tension, slow economic environments, and a falling U.S. Dollar. The tensions around the world have been fairly high, the world economy is growing moderately, and the U.S. is not far from a multi-year low. Yet, gold has struggled to move higher.

On a technical basis the SPDR Gold ETF GLD is on pace to finish Tuesday at the worst close since early February. This breakdown would have the ETF completing a descending triangle pattern that is highly negative. The pattern includes a series of lower highs (dating back to March) and a flat support level ($123.50 area). A close below support is a sell signal and could send GLD back down to the $115 area.

The Market Vectors Gold Miners ETF GDX has been forming a similar pattern and is now well below its support level of $23.25. If the pattern continues it could send GDX down another 10 percent to test the lows of late 2013. Not to miss out on the bearish party is the Market Vectors Junior Gold Miners ETF GDXJ, which is down nearly 3 percent on Tuesday and is trading at the lowest level since January.

Considering gold has not been able to rally in the face of geopolitical uncertainty and a falling U.S. Dollar over the last couple of years, the current technical breakdown does not bode well for the yellow metal. Investors need to take a good long look at the charts before considering an investment in gold ETFs.