Gold Breaks Out on Charts ‘Floodgates of Demand’
Technicals confirm a bull market in gold. Miners are surging; GDX is up 85% in 2016 and should keep going.
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 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 3VanEck Vectors Gold Miners ETF
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.
Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.