By Christopher Aaron
It is our hope that you will understand the scope and place of these articles in your own investment decisions.
There are dozens if not hundreds of sources that you may choose to turn to each week to read theories on why gold prices may rise, why stock markets should fall, or why the US dollar may or may not maintain its status as the world’s reserve currency for another year or another generation. Isolated fundamental theories are fascinating and make for good story-telling – but they carry little weight as to what is actually occurring in the market itself.
The market is the sum of millions of unique individuals, each hoping, believing, researching, and ultimately deciding how to act in their own unique way. We may know some fundamentals – but we cannot possibly know what each of the millions of individuals who participate in the market is thinking. And so we cannot possibly have complete fundamental knowledge. Technical analysts recognize their own inability to know all market fundamentals – but seek another way to overcome this inherent limitation.
All individuals, no matter what they believe about a market, must come together in one common place – and that place is the current price of the asset. Whether an individual chooses to buy, sell, or wait on the sidelines, he does so at the current market price. The current price is the single data point that contains the sum of all investors’ knowledge at the present moment. Although we cannot know all fundamentals, we can study trends and trend-indicators within that most simple yet powerful of data points – price.
Trend analysis gains its merit by Newton’s First Law of Motion: “An object in motion tends to stay in motion unless a new force acts upon it.” The same may be said of markets: “A market in motion tends to stay in motion unless a new force acts upon it.” And so we apply trend or motion analysis to the gold market and look for signs which may indicate that a new force may or may not be starting to act.
Gold Ascending Triangle - A Market in Motion
It is important to have a clear visualization of what is happening now in the gold market, and for that, we turn to the diagrams below. The integrity of the upward-sloping triangular consolidation is our primary concern.
(Chart courtesy stockcharts.com]
It should be emphasized that although the boundaries of the trend do extend until end-2019, most triangle patterns will resolve strongly between 2/3 to 3/4 of the way through the timeline of the pattern. Now at 31 months into a total of approximately 48 months for the ascending triangle’s boundaries, that puts gold within six months of an expected resolution – which will set the stage for the entire precious metals complex well into the next decade:
(Chart courtesy stockcharts.com]
Again, the bias of this pattern is still one of an upward-resolution, but in rare instances, positive-patterns will abort due to some fundamental shift in the underlying market, and a negative resolution will occur. We will only know these fundamentals in hindsight, but we will see a shift in the market should it occur on the charts first.
A Focus on Price Trends
These articles are designed not to repeat the fundamentals…but to highlight, to the best of our ability, what is actually occurring in the precious metals market each week. The study of the market itself is what we call technical analysis.
This week, for example, the international store of wealth found support in a clear series of rising buyers above $1,238, as can be seen on the charts above. As Newton said, this trend of rising support must be respected unless proven otherwise. We must constantly assess, and then re-assess, where we are from a technical standpoint if we hope to catch trend-changing signals as they arrive.
What you read here is a continuum of the analysis that crosses our minds and desks each week and that is impacting the very investment decisions made at our firm. We review these charts each week because the discipline of doing so ensures that we keep a strong pulse on the markets at set regular intervals. All it takes is one missed signal, one missed decision point, one missed trend-change…and the cost could be significant sums of hard-earned capital. We hope you will use these articles not to replace your fundamental knowledge base of the precious metals market – but to complement it with the analysis that comprises our best assessment of the actual trends impacting the metals each week.
Disclaimer: This article is provided as a third party analysis and does not necessarily match the views of Bullion Exchanges. It should not be considered as financial advice in any way.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.