Gold Bear Changing To Gold Bull?
Jordan Roy-Byrne, CMT | Jan 16, 2015 06:17AM ET
Bear markets end with extreme bearish sentiment but positive price action is needed before a trend change can be confirmed. That can include (among other things) breaking downtrends, breaking resistance and breaking the pattern of lower lows and lower highs. There have been positive developments for precious metals beneath the surface but Thursday’s breakout in gold is more significant. If gold holds this breakout then it will be all but impossible to argue that it remains in a bear market.
Below is a weekly candle chart of Gold and Silver. Thursday’s Swiss-induced strength helped propel the yellow metal above key resistance at $1240-$1250. Over the past four months gold has had every opportunity to sustain prices below $1200. Within that period gold made four different lows from $1150 to $1200. The action of the past two weeks and the break above resistance is a strong signal of an important trend change. Silver breaking its resistance would offer further confirmation of a broad trend change in the sector.
We’ve written often about gold’s relative strength and its importance in signaling a forthcoming trend change. On Thursday gold closed at a 20-month high in EUR/USD and foreign currency terms and is nearing a two year high against commodities. For months gold had remained weak against US and global equities. At present Gold is starting to break those downtrends. Below we plot gold against various equity indices (NYSE Composite, Dow Jones World, MS World, S&P 500).
Meanwhile, the miners have confirmed the rise in gold. With the exception of Market Vectors Junior Gold Miners (ARCA:GDXJ), every major index has completed a double bottom and is trading around three month highs. The chart below shows the daily line charts of GDXJ and Market Vectors Gold Miners (ARCA:GDX). We include the 400-day moving average which is often an excellent indicator of the long-term trend. The next important resistance figures to be the 400-day moving average. That could coincide with gold at $1280.
Get The News You Want
We continue to see signs that precious metals are moving into a new bull market. Gold has broken key resistance and is now breaking its downtrend against various equity indices. The miners are confirming gold’s rise. Moreover, let’s consider the context of these recent developments. They are occurring on the back of the second worst bear market (in price and time) in precious metals in 70 years. While I believe the bear market is over, I’m looking for more confirmation in the weeks and months ahead. The next important confirmation will be if and when Gold and miners reclaim their 400-day moving averages.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.