Gold New Trend : the Gold Bugs Revenge

February, 20 2014

Gold is off to a nice start in 2014, after losing a third of its value over the past 16 months. The rally of late could well be forming a bullish cup & handle pattern.

If this pattern read is correct, the handle needs to be completed. A decline in Gold would have to take place to complete the handle. As of this morning gold finds itself at a resistance and is making a short-term bearish wick.

The rally has been nice so far in 2014, but from a big picture perspective Gold hasn’t proven a ton as of yet. It remains inside of its falling channel and is making it first attempt since 2013 to post a weekly close above its 200EMA line at (2).

If the cup & handle read is correct, it’s bullish for gold. Stay tuned to see if the handle forms and if Gold can break above its 200EMA and out of its falling channel.

The bears have been in control of gold and the gold miners since 2011. The past year saw an acceleration of the rate of decent in their prices. Sentiment on gold has become extremely bearish. But that trend appears to be changing and the gold charts are showing some breakouts from the downtrend. I have learned that a breakout from any trend is well worth paying attention to.

The steep downtrend in gold has recently been penetrated to the upside, as can be seen in the chart of GLD, the gold ETF.

Further technical strength is provided by the double bottom at 115 occurring in July and then in December.

Narrowing the focus a bit and looking at the three-month chart, we see resistance at 122.5 broken to the upside:

Gold mining stocks are also performing bullishly:

Similar to GLD, its negatively sloped trend line has been penetrated to the upside and short term resistance at 24 has been broken above. Upside penetration of both the 50 day and 200 day moving averages provides further bullish support.

The technical picture for gold and the gold miners appears to have changed. After three years of declines, it appears that trend has been broken. I would at this point take the contrarian position and hold a constructive view of gold and the gold miners.