Gold is Starting to Shine Again

Gold has been an enigma the last 4 months, consolidating sideways in a broad $100 range between $1325 and $1425 an ounce with sharp moves either way. It also does not help that every move higher brings out the calls for $1500 or $2000 an ounce based on central bank buying plans or inflation expectations. And every move lower calls for a pullback to $1250 or $1000 per ounce based on it being in a bubble and domestic economic growth rising. These are all good stories but I only care about what the price action is telling me, it is telling me now may be time to buy again. Below is the daily chart for Gold.

This chart holds the first clues to Gold heading higher. Yesterday Gold printed a bullish hammer candle. This can be a signal for a trend reversal higher if confirmed, as it was today. But along with that confirmation the Relative Strength Index (RSI) curled sharply higher, another bullish indicator. Additionally the Moving Average Convergence Divergence (MACD) indicator has leveled and started to grow less negative. Finally all this happened after a test of support two days in a row, and a hold of that support at the 1325 area which was previously support in October. You could wait for it to clear the 100 day Simple Moving Average (SMA) at 1351.55 to be sure, but there are additional clues being formed in the weekly chart below.

This chart shows that the 1325 support area on the daily chart coincides with the 1323 support level of the nearly two year long rising trendline. Also notice that the RSI is starting to turn on the weekly. There are still 2 days left in the week, but if Gold closes 1340 or above on Friday it will print a bullish reversal candle, either a doji or a hammer. This will bring more traders and investors into Gold. Now you are saying, I don’t play commodities or futures so should I go buy Gold coins? No. The correlation between Gold, the commodity, and the GLD ETF is extremely strong. It is almost like the USA vs Canada relationship, just divide by 10. Below is the daily chart for GLD.

The $100 range in Gold has been a $10 range in GLD. Note that the ratio of Gold to GLD has been slowly rising but in a very tight range between 10.22 and 10.25 for almost a year (the rise is due to management fees on the ETF). The major support in GLD came at 129.35, the same level as in October, and the RSI and MACD have the same shape as the Gold chart. Use the GLD as a proxy for Gold if you are not comfortable with commodities.

The first target for Gold is 1366 and then 1376. For GLD the first target is 132.85 and then 134.39. Trade’m well.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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