Gold Market Update
Gold broke out of a 9-month trading range last week, and the breakout was by a sufficient margin to signal a new intermediate uptrend, even though the current reaction from a short-term overbought condition may have further to run. The move was all the more impressive as it happened without any help from a falling dollar. As pointed out in the last update, gold needed to "get on with it" quickly and break higher to obviate the risk of a breakdown, as it had been stuck in the trading range for a long time.
The 5-year weekly chart shows the breakout and preceding trading range in the context of the entire bull market to date. While clearly overbought short-term, hence the current reaction, it is not significantly overbought on an intermediate basis, so the new intermediate uptrend signalled by the breakout should have much further to run. A 9-month consolidation is not normally followed by a week or two up and that's your lot folks.
The 1-year gold chart shows the 9-month consolidation pattern and last week's breakout in detail. The short-term overbought condition resulting from the strong advance this month is highlighted by the RSI and MACD indicators, which are at their normal overbought limits. Hence the current reaction that has just set in and which is expected to run further, especially as the latest COT charts show that the Commercial's short positions have increased further ot a high level. This reaction, which is not expected to be very deep due to the change in sentiment resulting from the breakout, should be regarded as a buying opportunity. The large gold stocks, which had already reacted from overbought highs last week, appear to have already discounted a minor gold reaction and were looking ready to go up again on Friday, a notable example being Royal Gold (RGLD), which closed near its highs after a large daily range.
We will be examining a range of large and mid-cap gold stocks on www.clivemaund.com in the near future.