The price of spot or cash gold was up around $20 an ounce this Friday morning to the $1,548 area at 9 a.m. ET. Gold prices can react quickly to global tensions as nervous traders cover shorts or jump to add to speculative longs. The leveraged futures market can make headlines and prompt calmer hands to react. Let's look at a few charts to see if this could be a flash in the pan or a more serious rally.
In this daily bar chart of the SPDR Gold Shares ( GLD) , below, we can see that prices have crept higher the past two months and are close to the early August peak. Prices are above the rising 50-day moving average line as well as the slower-to-react 200-day moving average line. Trading volume has been declining since August, but the daily On-Balance-Volume (OBV) line has been moving upward the past six weeks or so. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed above the zero line last month for an outright go long buy signal, putting the market in a bullish position ahead of the news.
In this weekly bar chart of GLD, below, we went back 10 years to show a large bottom formation from 2013. Big bottoms tend to generate big rallies and this six-year bottom pattern could support much higher gold prices in the next two years. Prices are above the rising 40-week moving average line. The weekly OBV line shows a strong rise from the fourth quarter of 2018 and tells us that buyers of GLD have been more aggressive. The weekly MACD oscillator is above the zero line and poised to turn upward to a new outright buy signal.
The big base pattern can be seen also in this weekly close-only Point and Figure chart of GLD, below. A potential longer-term price objective of $189 is indicated. Point and Figure charts ignore time and volume, so we have no idea when (or if) the $189 price could be reached. We do know that gold is a relatively small market and small markets can respond sharply when money is pushed at them.
Bottom line strategy: Gold futures will be volatile and swing sharply on the upside and the downside. They are not for the faint of heart. Consider a precious metal mutual fund or a few mining names we have written about in the past year if you want to get exposure.
