Gold prices have been struggling in recent weeks as a firm U.S. dollar, diminished fears over North Korea and other potential global hot spots, dulled inflation fears, and better returns available in the equity markets have dulled speculation and investment in the precious metal.
Let's take a look at a number of charts and indicators that tend to be forward looking to see if we should get ready to be a buyer or continue to stand aside.
In this daily bar chart of the August 2018 gold future, below, we can see some bearish and some bullish clues. Prices have been declining in recent weeks but they have not broken the December 2017 low.
Futures are below the declining 50-day simple moving average line and it has dropped below the cresting 200-day moving average line. This crossover is considered a bearish signal and is commonly called a dead cross.
Both moving averages are typically too long for the futures community that is used to 4-9-18-day signals. On the right side of the chart I have drawn a line along the recent lows. In the lower panel is the 20-day price momentum study which shows a bullish divergence with equal lows when prices have made lower lows. A bullish divergence can sometimes foreshadow a price reversal to the upside.
In this long-term Point and Figure chart of (GLD) , the gold ETF, (below) we can see some key parameters. A decline to $117.00 would be a new low for the recent move down but there is some good chart support below the market.
On the upside, a rally to $133.38 would be a key upside breakout and could be the star of a much longer-term price objective of $191.88.
In this daily bar chart of (GDXJ) , a measure of junior precious metal companies, we can see that prices of these junior names have been trending sideways but notice the strong movement on the upside from the On-Balance-Volume (OBV) line in the lower panel.
The rising OBV line suggests that buyers of these stocks have been more aggressive for months. Junior mining names are more speculative and often lag the senior names at turning points.
I consider this buying of the junior names to be bullish as you need to have more confidence in the price of gold going up to buy these names.
Many gold market analysts focus on the direction of the U.S. dollar and they typically suggest that a weak dollar is needed to propel gold prices higher.
In this long-term monthly chart of the U.S. Dollar Index, below, we have used a 12.5% band or envelope around the 12-month moving average. This wide envelope does a good job of indicating extremes and longer-term buys and sells. The slope of the 12-month moving average line is down and so are the envelope bands.
In the lower panel is a price momentum study which has made lower highs for the past four years. This long-term momentum trend suggests a lower trend for the greenback and the potential for gold to advance.
Bottom line: While some analysts are bearish on gold or do not look for a sustained advance until 2019 or 2020, I think gold could surprise on the upside the balance of this year. Look over the charts of some of the junior names and become a buyer on strength as June ends and over the next three months.