Is Gold Changing Trend or Seeing A Bear Market Bounce?

While the focus for 2016 has been squarely on equities, China, and oil, gold has been an interesting market to follow for the beginning of this new year. Below I’ll be reviewing three charts for gold ($GLD) and share my insights into what’s been taking place in the price action.

Monthly
First up is the monthly chart for gold ($GC_F) going back to 2005. I’ve included the 50-month Exponential Moving Average as well. While I typically use Simple MA’s more often, when looking at monthly charts with longer time frames being included in the average, an Exponential Moving Average can often provide a clearer picture, as it gives a stronger weight to the most current data.

As we can see in the chart below, the trend in price has been defined by the 50-month EMA, which has been a form of resistance since 2013 and is where gold prices are currently testing. I also would point out the level we’re at in the Relative Strength Index (RSI) – while this momentum indicator has been in a multi-year bearish range, it recently has broken out to a new 3 year high.

Weekly
Next we have the weekly chart. Here we can see the nice bullish divergences that have been taking place in momentum for both the RSI and MACD indicators. The RSI made its low back in 2013 and has been making higher lows ever since. While the MACD has been in a range since 2014. Price has been in a declining channel as shown by the blue trend lines on the chart below. Last week we finally saw price break out from this channel as the RSI moved close to 70.

Sentiment
Finally, we have sentiment. The graph below comes from SentimenTrader and shows sentiment for gold since January 2015. As you can see, while we had been at pessimistically low levels not that long ago, gold traders have now moved this sentiment gauge near an extreme optimistic level. Jason at SentimenTrader put things nicely in his take on gold, “If gold is undergoing a long-term (six-month+) trend change, then we likely won’t see too much of a correction from here. But for the moment, the bear market is intact, and extreme optimism during a bear market is usually greeted with heavy selling pressure over a multi-week time frame.”

I agree with Jason in that we are at an important moment for gold in whether it’s long-term down trend is preparing to flip. Going forward I’ll be watching to see how gold prices react to levels I’ve mentioned above (the resistance on the monthly and channel levels on weekly). I want to see how gold reacts around the $1300 level on the upside and we do get a pull back, if it respects prior resistance from the channel on the weekly chart.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.