While we don’t typically begin with a monthly chart, it seems like a good place to start because most of the good news is present there. Beginning on the left side of the chart we can see how gold made a parabolic advance into an all-time high in 2011. Parabolic advances beg for correction, and boy did gold correct. It declined almost -50% into a low in 2015, then it advanced for over three years into a new all-time high in 2020. During that time it formed the bullish cup formation.
Next it consolidated for over three years (the handle), ultimately breaking out of a 12-year consolidation. I think it is an important point that gold took over 12 years to digest the huge advance into the 2011 top. In my opinion, it puts a solid floor under the most recent advance.
Currently, we can see that gold has gone parabolic again, and it is hard to know when it will top. The preferable resolution to this vertical move would be a sideways consolidation, but we’ll just have to wait and see. In my opinion, we shouldn’t see any kind of parabolic crash.
Another bullish sign is that sentiment is still bearish. We assess sentiment by seeing if the closed-end Sprott Physical Gold Fund (PHYS) is selling at a discount or a premium. As you can see it has been selling mostly at a discount for 11 years, clearly showing that the public is still not yet excited about owning gold. We think this is because crypto currencies are attracting a lot of the money that might otherwise be moving into gold. In any case, bearish sentiment is bullish for gold.
Looking at the daily candlestick chart below, we can see that the Gold ETF (GLD) closed at an all-time high today, just above a solid level of support. To clarify, GLD is a vehicle that can be used to trade/invest in gold, while the symbol $GOLD is a continuous contract dataset used to track the price of gold, but it cannot be owned.
Conclusion: Gold spent a long time, over 12 years, consolidating huge gains in the early part of the century. It recently broke out decisively from that trading range, and it appears to be at the start of another strong, long-term rally.
Learn more about DecisionPoint.com:
Watch the latest episode of the DecisionPointTrading Room on DP’s YouTube channel here!
Try us out for two weeks with a trial subscription!
Use coupon code: DPTRIAL2 at checkout!
Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin(c) Copyright 2024 DecisionPoint.com
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 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.
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.
Helpful DecisionPoint Links:
Trend Models
Price Momentum Oscillator (PMO)
On Balance Volume
Swenlin Trading Oscillators (STO-B and STO-V)
ITBM and ITVM
SCTR Ranking
Bear Market Rules
More Stories
Semiconductors Are Down: Is Now the Time to Buy SMH?
Big Tech Earnings, Fed Meeting, Jobs Report: Will They Add More Pressure to the Stock Market?
S&P 500 Equal Weight ETF Gains Strength