Gold's Rally Hits Resistance: How to Play the Pullback

Gold's rally has hit a wall, at least for now, as it pauses after reaching a key technical level. The price of gold (GC=F) has been on a tear since its July low, part of a broader breakout that is repairing much of the damage from earlier this year.

The SPDR Gold Shares ETF (GLD) topped out near $496 earlier this year before sliding to a July closing low of about $365. Halfway between those two levels sits $430, which GLD traded just short of on Monday before opening lower on Tuesday.

Mark Newton, global head of technical strategy at Fundstrat, sees room for a pause without abandoning the bigger bullish case. 'I sense that gold as well as cryptocurrencies likely [are] going to back and fill a little bit,' he said.

A bear put spread is one way to play a tactical pullback with limited risk. The trade involves buying one Sept. 25 $425 put and selling one Sept. 25 $415 put, creating a $425/$415 bear put spread for a net debit of about $4.60.

Phil Streible, chief market strategist at Blue Line Futures, is looking for a similar pause before another potential run. 'Seasonally we tend to see gold prices take a bit of a pause in early September,' he said.