Gold at an Inflection Point

• Posted by Greg Harmon
• on January 18th, 2017

Gold had a great run higher off of a bottom in December 2015. It peaked 7 months later in July 2016 and over 30% higher. That period was followed by 3 months of consolidation before it turned back lower. The drop continued over the next 2 and a half months, finding a bottom in mid-December. At the bottom it had retraced almost 78.6% of the move higher.

Now it seems everyone is following Gold higher again. The latest rally has been about 1 month long so far, and it has covered about $100. It has also recovered about 38.2% of the down leg from 2016. With that much of a ‘bounce’ it has to be a reversal that will last right? Not so fast. While the move has been impressive, the price of Gold now stands at an inflection point. There are 3 things for the long term investor to watch before committing to a move higher.

The first, of course, is continued price action to the upside. A solid push through 1212, is a good start. Breaking above the price level that was support in March and June, at 50% of the initial leg higher is a big deal. It could take some time and that would be healthy too. With battles between buyers and sellers there in February, March, June and November, there is clearly some investor opinion at this level.

The next thing to watch is the momentum. It has been running hot lately. The RSI nearing a technically overbought condition, and is above the peak where Gold reversed lower in November. The MACD is still rising and is now positive. The former suggests a pause or slowing of the move higher would be good for Gold. The latter that it is still strong.

Finally keep an eye on the 200 day SMA. Currently this arbiter of a bull/bear trend is about $50 higher. The move higher in Gold in 2016 gathered stream as it pushed through the 200 day SMA in February, but it has not been above that line since it started the accelerated crash lower in November. A push above the 200 day SMA could be the icing on the doughnut.

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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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