This article was originally published Friday, June 14th, but with Thursday’s big rally and gold hitting a 5 ½-year high, many people believe that this was a major upside breakout. I’ll start with the updated chart, which does not convince me – yet – that a breakout is in place. Of course, new information can change that view but we cannot trade based on what has not happened yet.
The daily chart is even more stretched. So, given this new information, the case for a major breakout is now in play but I need to see how the market reacts to its short-term condition. I’m not a buyer today, barring fresh geopolitical news, but a modest pullback to test the breakout would be a better way to play.
And just for further mud, the U.S. dollar index may be on the verge of a short-term breakdown, which will support gold. This is far from confirmed.
Here is the original piece, written a week before the attempted breakout.
A name-brand fund manager now calls for a recession soon and is buying gold. A name-brand invstment bank thinks that economic conditions today are worse than they were during the financial crisis.
Naturally, we would expect the metals markets, with their safe-haven statuses, to be rip roaring higher. But they really are not.
True, gold has looked pretty strong over the past few weeks thanks to tariffs and trade wars. And it even got the benefit of a short-term trendline breakdown in the U.S. dollar late last month for a little extra juice.
But in the bigger picture, it has not yet really broken out.
This weekly chart shows the market at resistance in the 1350-1385 area. Basically, no breakout – yet.
Now, I can see that a move above resistance will break a six-year basing pattern to the upside and that would have some bullish long-term implications. I could see that targeting as high as 1700, albeit over many months.
So why, then, does silver look so, ahem, tarnished? This market, as well as platinum, has been bumping along the bottom for literally years and that has pushed the gold/silver ratio to a 26-year high.
What does that mean? Honestly, other than silver being cheap relative to gold, I don’t know. More of an interest in hedging with gold vs. the combination hedging/industrial use for silver?
To me, it suggests that with silver weak and gold at resistance, the yellow metal is not about to break out. The ratio could revert somewhat back to the mean with falling gold, staying within the base.
That makes sense when we see the greenback jump up sharply today (June 14). Of course, that move is a single event, not yet a trend although it does look like a continuation higher of the 2019 trend, if not the 2018-2019 trend.
Therefore, I’m still not backing up the truck for gold but then again, if the market changes – a base breakout – then I will change my mind.
….and that, my friends, is the whole point of this update.
Michael Kahn, CMT has been working with charts and technical analysis since 1986 and just finished a long run at Barron's. He is the author of three books on technical analysis published in five languages. His specialty: jargon free analysis accessible to everyone.