In the Oct. 17 issue of The Institutional View, I highlighted gold’s
powerful bullish reversal from $1,811 support. By hurdling $1,940 without breaking below $1,900, my work generated a Buy signal for Gold. I advised my clients to buy gold once it hurdled $1,940.
When we look at the daily chart of
gold,
we see a bullish reversal of $1,911. (Higher high than the prior day, lower low than the prior day, and a close above prior day’s high.)
That bullish reversal was accompanied by a “liftoff gap.” In other
words, bullion opened “up” above the prior day’s high and closed sharply higher from its recent $1,811 low. Bullish reversals and liftoff gaps are typical when prices end their decline and begin a new advance.
What made the advance off of $1,811 even more bullish was that the rally carried all the way to the 200-day moving average in the $1,930 area. After a few days of sideways trading action, gold hurdled price and 200-day moving average resistance in the $1,930 area decisively. With its close above $1,940, gold’s trend not only reversed from neutral to bullish but also generated upside projections to $2,050.
Examining the long-term monthly chart, gold has spent the past 12 years trading between roughly $1,000 and $2,000. But what is so bullish is that within the long base, bullion has been making progressively higher trading ranges. And each consolidation has been shorter than the prior one. This trading action is typically what happens before a strong upside breakout.
Strategy: With strong support in the $1,900 to $1,925 area now, my work indicates that gold will be testing its $2,075 record high in the next few months—and possibly by year-end. And once it has a monthly close above $2,100, then my work would project a long-term advance to $3,500 or more.
Andrew Addison is the author of The Institutional View, a research service that focuses on technical analysis.
Write to [email protected]
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