Analysis: Gold Continues Oscillating, on the Verge of a Major Signal

Long-Term View

  • In 2015, gold found support at its 2008 peak (resistance-turned-support in Figure 1 – white trendline; GLD chart shown).
  • In August 2017, the commodity broke above a key resistance (violet trendline), which subsequently served as support on two occasions in October and December of 2017 (violet arrows).
  • Gold has formed a large, multi-year inverse H&S pattern (lows – yellow ellipses, neckline – yellow downward sloping trendline). 2017’s failed attempt to break the neckline (yellow arrow) confirmed the importance of the trendline, even if the observed pattern does not prove to be an inverse H&S. In 2018, the commodity has oscillated sideways, going above and below the trendline several times (see Short-Term View).

Figure 1. GLD 6-Day Chart  

Short-Term View

  • The commodity has been trading in a horizontal channel since January 2018 (blue horizontal trendlines), with an upper boundary roughly 1% away from 2016’s high.

Figure 2. GLD Daily Chart  

Implications

  • While it could be argued that the neckline of the H&S has already been broken to the upside, given the commodity’s price action in 2018, one should wait for the short-term to align with the long-term view for a confirmation.
  • A break above the upper boundary of the channel will activate 2 targets. A conservative one (with a 4% upside) if the channel is considered to be a “trading range”. A more aggressive target (with a 9% upside) is obtained if the channel is considered to be a “flag”. A move above 2016’s high should be used as a confirmation of the breakout.

Outlook

  • Neutral with a bullish bias.
  • If the commodity breaks above its 2016 high (1,380 used as a trigger, just above the 2016’s high), outlook will shift to bullish.
  • If the commodity breaks below the lower boundary of the horizontal trading channel (using 1,300 as a trigger, just below the support of the channel), outlook will shift to bearish, at least in the very short-term

Featured image courtesy of Shutterstock. 

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