Back in February, I wrote here that the price of gold was off to a great start in 2016, but on the charts it was still officially in a bear market. The major reason was the long series of lower lows and lower highs was still in place. However, shortly after I penned that missive, gold did set its first higher high. And thanks to the soaring reaction to the May jobs report last week, we now see a clear higher low in place.

In other words, gold finally has an upside breakout.

The chart is not exactly textbook, as some would argue that the higher low was actually set in March. In that case, last week’s low would have negated its bullish meaning (see Chart 1). I do not agree, however.

Chart 1


I look at the entire February-June period as a single breakout structure with complex ebbs and flows. The bottom line for me is that prices moved above resistance in February, rested for a few months to reset the market’s idea of value and then attracted hordes of bulls when the news was favorable.

Chart aficionados may also argue that the structure was a failed double top pattern. In technical analysis, such failed bearish patterns usually become bullish signals. Given the strong reaction to the plunging U.S dollar Friday after the jobs report we can assume that will be the case here. The dollar and gold usually move in opposite directions. There are no guarantees, of course, but it is a great start.

Silver was ever farther behind in its attempted reversal in February but it has fallen in line behind gold with similar long-term trendline and resistance breakouts (see Chart 2). Even better, the short-term trend up from the December low has a series of higher highs and higher lows to define a better pattern than that of gold.

Chart 2


Gold mining stocks look just as interesting, again with similar breakouts. In the February column, I pointed out that the VanEck Vectors Gold Miners exchange-traded fund traded unusually high volume between July and February (see Chart 3). Average volume jumped from roughly 40 million shares per day to 60 million.

Chart 3

VanEck Vectors Gold Miners ETF

The increase in trading signaled growing interest in the sector even through prices were still moving mostly sideways in an ongoing long-term decline. Then, in January, the ETF dipped to a new low but immediately reversed to the upside. Volume jumped up to 90 million shares per day as the market’s mood changed in a big way. The fund is up a whopping 85% year to date.

Indeed, on-balance volume, which keeps a cumulative total of volume on up days minus volume on down days, started to rise quite sharply. Since the January reversal, on-balance volume rose to its highest level ever (the ETF began trading in 2006). It gained more in five months than it had lost in the entire bear market from 2011 through 2015. That is saying something.

If on-balance volume is a proxy for supply and demand, then the floodgates of the latter just opened. We’ll see if it continues, but for now it looks strong.