Gold Technicals Indicate The Next Leg Up Is Finally Here

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Includes: AAAU, AGQ, BAR, CEF, DBP, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GHS, GLD, GLDI, GLDM, GLDW, GLL, GLTR, IAU, IAUF, JJP-OLD, OUNZ, PALL, PGM-OLD, PHYS, PLTM, PPLT, PSLV, PTM, QGLDX, SGOL, SHNY, SIVR, SLV, SLVO, SPPP, UBG, UGL, UGLD, USLV, USV, ZSL
by: Robert Kientz
Summary

Gold is forming a strong cup and handle pattern, which is bullish for future price.

The last time this happened, we eventually peaked at about $1900 per gold ounce.

Fundamental economic weakness similar to 2008 supports the technical thesis that gold is about to run again.

Gold is an interesting market. Just when you think the world has completely forgotten the history this precious metal has had in finance, the price does something to move it back into the mainstream conversation. We may be nearing a point in which gold takes center stage among investors once again.

Here is a price chart on gold for the last 5 years.

Gold Price 5 Year Chart Image Source: APMEX

As we can see, the metal has had its fair share of ups and downs, bottoming out in late 2015 and early 2016. Current prices range from 1190 to 1350, with the latter serving as a critical resistance point for quite some time. Psychologically, $1350 is an extremely important barrier for the gold market and its investors.

Good news may be on the way for gold, bulls, in the form of strengthening technicals.

Bullish Technical Signals

A new bullish pattern has been forming in gold since January of 2018. Prices exhibit an extended cup and handle pattern that is typically associated with bull market price moves.

Cup & Handle Image Source: GoldPrice.org

You know the pattern is bullish when a full cup forms, as we see in the picture. As well, the handle portion on the right of the cup needs to be downward sloping, as it is with the current gold price. Further, the pattern we see in gold fits in with the typical time frame in which cup and handle patterns result in strong upward price movements.

The size of the bull move is related to the depth of the bottom in the cup. So I would expect that the potential top of the next bull market in gold to be about 160 points, which would put it around the 1440 level. This would, most significantly, put gold past the recent persistent $1350 price resistance point for the metal.

That begs another question about the gold price trajectory. There isn't a lot of historical resistance points for gold price between the $1350 and $1900 price levels. Gold had its recent meteoric rise after the last recession, punching through never before seen price levels. If the metal breaks hard resistance, will the price continue to run all the way back to $1900?

Long Term Technical Outlook

As you can see on the following longer term chart, there is strong reason to believe that support is building for higher gold price plateaus.

Gold Long Term Technical Outlook Image Source: GoldPrice.Org

Starting in late 2008, gold price moved strongly to complete the right upper portion of the cup. During 2009, prices trended downward to complete the negative handle formation. After which, the gold price ran to new all time highs around $1900 in 2011. The price held within this range through the end of 2012, where it began moving back down to the current price ranges.

Note that the current range is a 50% increase from the highs experienced in 2008. And the current price is three times higher than the $400 price level found in 2005. This is one of the main reasons gold bulls are so adamant in the value of gold over time. Gold is doing what it is supposed to do - hold value against inflation of prices while providing a safe hedge against the periodic uncertainties found in financial crises.

Fast forward to today, and we see not only a cup and handle forming since 2018, but higher lows forming a base under the current $1350 resistance point. This building base appears likely to propel the gold price through resistance during 2019, should the technical formation hold true to form.

How High Will Gold Go?

We do not know what the price top will be for the next leg of the gold bull. There is a key $1600 resistance/support line that will need to be crossed. The reason I call it both resistance and support is that large price moves tend to turn resistance lines into support lines for the next plateau of the bull cycle. $1600 was indeed a support line for 2 years after gold topped at about the $1900 price point.

Whether you believe the current technicals are really bullish for gold in 2019 likely depends on your style of investment. For example, if you primarily follow the US stock market and investment sentiment indicators, then your view of gold price action would tend to be more to negative. Meaning, you may see this is a false positive in technical formation, and likely believe gold will retest the $1190 price level to the downside.

If you believe, as I do, that economic fundamentals ultimately assert power over all markets, then you would see the gold technical setup as very bullish. That is because the economic fundamentals in the economy are weakening. Dave Kranzler and I covered a wide range of those economic fundamentals in much detail during our recent discussion.

True old-style investors, and I am not talking about purely price speculative traders, invest over long periods of time. They understand the economic cycle, and line up their financial positions with these generational type of moves that markets will make from time to time.

We are nearing the end of the current stock bull market, if history is any indication. Bond interest rates are also trending up, signaling the end of the very long bond market bull cycle. What alternatives will you make when these mature stock and bond markets begin their strong downward movements?

Summary

Gold appears to be resuming its decades long bull run since 2000. Technicals of the market point to another substantial leg up. Economic fundamentals also appear to be lining up with sentiment building in the gold technical charts. Time will tell where we ultimately land in 2019 - a gold head fake, or recognition once again of gold's pivotal role in the very volatile, debt-based financial system we live in today.

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.

Additional disclosure: I own physical gold.