Gold Chartbook: Bullish Momentum Remains Strong (XAUUSD:CUR)
Over the past seven months, gold has once again done everything it can to hide its true intentions. In retrospect, August’s flash crash to a low of $1,678 actually marked the start of a multi-month uptrend. With Friday’s close at $1,898, Gold (XAUUSD:CUR), along with the SPDR Gold Trust ETF (GLD), iShares Gold Trust ETF (IAU) and Sprott Physical Gold Trust (PHYS) are now trading around $220 traded higher from this $1,680 level, which had held three times over the course of 2021. A series of higher lows and now finally higher highs have been established! Bullish momentum remains strong.
Even at the last major low ($1,750) on December 15, 2021, sentiment was still sour as the sector had become the most hated asset class. Fast forward now, gold has successfully broken out of its multi-month triangle and continues to sprint higher. The bulls are currently bending the daily and weekly Bollinger Bands higher and the seasonality is still quite supportive.
Gold in US Dollars, weekly chart as of 02/20/2022
Looking at the weekly chart, it appears that gold has not only broken out of a triangle consolidation pattern, but also a major inverse head and shoulders pattern. It’s not a head and shoulders textbook, but it’s worth mentioning. A measured movement forecast could theoretically take gold towards $2,125! However, the monthly Bollinger Band lying around $1,975 could be a much more realistic target for the ongoing move. As you may recall, the $1,950 to $1,975 zone is a very strong resistance. However, we do not rule out a short-term overshoot towards $2,000.
Overall, the weekly chart is not yet overbought and looks bullish. So the rally has a very good chance of continuing for a few more weeks.
Gold in US Dollars, daily chart for February 20, 2022
As expected, the break above $1,840 to $1,850 released enough energy to quickly propel gold prices towards the round psychological figure of $1,900. Fortunately, the daily stochastic has turned its overbought state into the rare “embedded status” where both signal lines are above 80 for more than three days in a row. Therefore, the uptrend is locked in and shorting this market would fight the uptrend.
Of course, given the uncertain and complex geopolitical situation, events can and will have a major impact on gold in the coming days and weeks. From a technical perspective, any pullback towards the breakout zone around $1,845 would be a buying opportunity. However, prices below $1,875 would come as a surprise even in the short term. In fact, gold is much more likely to continue its run to at least $1,930 in the coming days.
In summary, the daily chart is bullish. Most notably, the bullish embedded stochastic oscillator is unlikely to allow a major pullback, more likely a consolidation around $1,900. Watch these two signal lines. Only if any of them broke below 80 on a daily close could the bull run be over!
GDX (VanEck Gold Miners ETF) in US dollars, daily chart from 02/20/2022
Gold and gold-related mining stocks often stabilize your portfolio during uncertain times and act as a hedge. While the stock market continued its dive due to the crisis in Ukraine and the possible turnaround in interest rates in the USA, the VanEck Gold Miners ETF followed suit (NYSEARCA:GDX) is up more than 21.5% since its low in mid-December. Over the past two weeks, the leading gold mining stocks have had some of their best days in the last 12 months. Last week, Barrick Gold (NYSE: GOLD) was up more than 7% on good earnings, a dividend increase and a new share buyback program. Some smaller gold stocks such as Sabina Gold & Silver (OTCQX:SGSVF) as well as iShares Silver Trust ETF (SLV) and Sprott Physical Silver Trust (PSLV) were up even more (+15% on Friday 11th).
Now that gold is on the rise, it’s time for battered and undervalued mining stocks to catch up. It usually starts with the big senior producers like Barrick Gold, Agnico Eagle Mines (NYSE:AEM)and Newmont Corporation (NYSE:NEM)then come the juniors like Victoria Gold Corp. (OTCPK:VITFF) to this, and eventually the explorers and developers literally explode higher.
However, GDX has almost reached its downtrend line as well as the 38.2% retracement of the entire corrective wave since August 2020. Therefore, the big miners are facing resistance and may need to consolidate soon.
At the same time, note that silver (XAGUSD:CUR) is in default. Silver always lags most of the time, but in the final stages of the sector-wide rally, it suddenly overtakes all other metals and shoots almost straight up. This is also typically a sign that the rally in the industry is coming to an end. Obviously we haven’t seen any strong silver days yet. Therefore, silver is indeed confirming that the sector has more room and time to move higher!
Conclusion: The bullish momentum remains strong
Overall, gold continues to look promising here as bullish momentum remains strong. Therefore, gold is likely on its way towards $1,950 and $1,975 with a slight chance of a surpass of $2,000. But of course, given the fairly overbought daily chart, the risk-reward ratio isn’t that great anymore. However, silver and many of the smaller mining stocks could still offer a chance to ride the ongoing rally over the next few weeks.
Expect a major pullback once gold peaks in the spring. Maybe even back towards the higher trending 200-day moving average (currently at $1,808) sometime in midsummer. But that’s all somewhere in the future. For now, bullish momentum remains strong.