Is gold about to go full bull? Let’s check some charts to see.
Before we do, here are some basic price facts: Gold GC00, +0.05% peaked in 2011 at just above $1,900 an ounce. Since then, it’s been an exercise in dread for gold bugs. (Disclosure: I have no positions in gold.)
Gold bottomed in early 2016 and now it’s back in the same price range as it’s been since 2013. So, basically, the price of gold has gone nowhere over the past six years, which could be interpreted as a consolidation range.
While the price chop may seem arbitrary, we can, however, discern some structural conclusions on a larger time-frame chart:
There are two key trend lines:
• A supporting trend line from the 2008 lows connecting the 2015/2016 lows and the 2018 lows. Price remains above this trend line.
• A trend line that formed resistance off the 2011 and 2012 highs and represented resistance in 2016 and initially in 2017. Price has broken above that trend line in 2017 and has remained there ever since.
Bottom line: Trend-line resistance has been overcome and trend-line support has been affirmed. Combined, those events are supportive of a potentially larger bullish outlook.
However, price has really not made much progress. In the chart above, one may identify a potential bull flag, but that has risk that can be traced to the support trend line.
Taking a closer look, we can see an additional pattern, and I present a structure identified by my better half, Mella, a potential inverse pattern on gold:
To be clear, this is not a confirmed pattern; it’s a potential pattern. But it comes with the aforementioned bull flag. To see confirmation, gold needs to move solidly above $1,350-$1,380 an ounce, perhaps a tall order in its current configuration. That pattern, if triggered, may be quite powerful, as it implies a $1,520 target.
When is the pattern and support structure invalid? A sustained drop below $1,250 would spell trouble. A level of $1,250 represents confluence support of the long-term support trend line and the 0.236 Fibonacci level shown in the earlier chart.
Another way to think about the setup is risk and reward. If the pattern plays out, risk can be defined as $1,230/$1,250 and upside reward to $1,520, or about 3% downside and 19% upside from current levels.
Sven Henrich is founder and the lead market strategist of NorthmanTrader.com. He’s well-known for his technical, directional and macro analysis of global equity markets. Follow him on Twitter at @NorthmanTrader.