While we don’t typically begin with a monthly chart, it seems like a good place to start because most of the good news is present there. Beginning on the left side of the chart we can see how gold made a parabolic advance into an all-time high in 2011. Parabolic advances beg for correction, and boy did gold correct. It declined almost -50% into a low in 2015, then it advanced for over three years into a new all-time high in 2020. During that time it formed the bullish cup formation.
Next it consolidated for over three years (the handle), ultimately breaking out of a 12-year consolidation. I think it is an important point that gold took over 12 years to digest the huge advance into the 2011 top. In my opinion, it puts a solid floor under the most recent advance.
Currently, we can see that gold has gone parabolic again, and it is hard to know when it will top. The preferable resolution to this vertical move would be a sideways consolidation, but we’ll just have to wait and see. In my opinion, we shouldn’t see any kind of parabolic crash.
Another bullish sign is that sentiment is still bearish. We assess sentiment by seeing if the closed-end Sprott Physical Gold Fund (PHYS) is selling at a discount or a premium. As you can see it has been selling mostly at a discount for 11 years, clearly showing that the public is still not yet excited about owning gold. We think this is because crypto currencies are attracting a lot of the money that might otherwise be moving into gold. In any case, bearish sentiment is bullish for gold.
Looking at the daily candlestick chart below, we can see that the Gold ETF (GLD) closed at an all-time high today, just above a solid level of support. To clarify, GLD is a vehicle that can be used to trade/invest in gold, while the symbol $GOLD is a continuous contract dataset used to track the price of gold, but it cannot be owned.
Conclusion: Gold spent a long time, over 12 years, consolidating huge gains in the early part of the century. It recently broke out decisively from that trading range, and it appears to be at the start of another strong, long-term rally.
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Carl Swenlin is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor.
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