By Decision Point:
Gold switched to a neutral signal on January 29, but it looks as if a new Trend Model buy signal will be generated soon. Below you can see that the price index recently broke out of a descending wedge pattern (as expected for that pattern), then, after a pullback toward the breakpot point, it has begun to move higher. The buy signal will be generated when the 20-EMA moves up through the 50-EMA, something that is very close to happening.
Note also how the PMO (Price Momentum Oscillator), while not terribly oversold, has bottomed in the area that it did last April, when the big rally to 1200 began.
It is always a good idea to step back and view prices in a longer-term time frame, so the weekly-based chart of gold is shown below. We can see the strong rally up through the long-term resistance at 1000, followed by a two-month pullback toward 1000, an area that now forms strong support. It is also notable that the correction was stopped by the long-term rising trend line, which appears to be supporting the new rally.
In relation to gold, it is also usually a good idea to look at the U.S. dollar chart to see if currency weakness will lend support to a rally in gold. While the dollar has been showing good strength foe about three months, we can see that it has reached the top of a rising trend channel, and the PMO is somewhat overbought and has generated a crossover sell signal. This leads me to believe that the dollar wiil experience a correction soon and will support rising gold prices for probably several weeks.
Bottom Line: Bullish price action in gold and expected dollar weakness point toward another rally in gold. I don’t want to stick my neck out with a price projection, but, IF prices can move to the top of the rising trend channel drawn on the weekly chart, 1400 is a reasonable target. That’s a big “IF”.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.