Gold Showing Bull Market Characteristics But Needs To Confirm Positive Trend Action

By Martin Pring:

The last time we looked at gold, the price of the yellow metal looked vulnerable because the KST indicator (read more about the KST in the Chart School section on StockCharts) was overbought and declining. I also pointed out that the price of the Gold Trust ETF, the GLD had been tracing out a series of declining peaks and troughs.  For this exercise I used the zig zag retracement tool with a parameter of 7.5%. The first chart below shows that the negative progression is still intact. It would be reversed with a rally above the previous high, say at $126. What is interesting is that recent prices retraced exactly 66% or two thirds of the previous advance. Arguably more important is the fact that volume patterns have turned bullish. Note how the previous declines were associated with selling climaxes. This is pointed up by the percent volume oscillator in the bottom panel.

However, in January things began to change as that rally was associated with rising volume culminating with a buying climax. The subsequent February decline took place under the cover of declining activity. Right now the oscillator is oversold, which suggests that volume will soon expand.  If it does, and prices begin to firm that would be quite positive.

gold_price_19_february_2015

 

The second chart shows that while the KST for GLD is still in a declining mode the price itself formed a bullish hammer on Wednesday. These patterns of course, only have an effect for the short-term but that may be enough to permit a bottoming in the KST and the signaling of a new rally. Straws in the wind perhaps, but worth close scrutiny as the character of gold’s technical position appears to have changed for the better. A good starting point to confirm all this would be a move above the dashed down trendline at $117.

gold_price_19_shortterm_february_2015

Courtesy of StockCharts.com

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