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Is this the Start of a Big Rally for Gold?

By:
Charles Thorngren
Published: Nov 16, 2017, 14:20 UTC

This is not a normal market. The US stock indexes are teetering on record highs - and you can almost feel the spinning plates on top of the sticks -

Gold5555

This is not a normal market. The US stock indexes are teetering on record highs – and you can almost feel the spinning plates on top of the sticks – wobbling…

First, let’s take a look at this monthly chart of gold.

Gold Monthly Chart
Gold Monthly Chart

The green line on the chart is the 55-day SMA. This is a classic timeframe indicator for strong support and resistance in pricing. The blue line is the 21-day EMA. This too is a major indicator of support and resistance – but on a much lower timeframe. It is usually more useful on daily charts, for example.

As the top chart clearly shows, gold climbed out of the 2008 stock-market correction to climb to a high of around $1,900. After falling, and then rallying slightly, it fell during the course of 2013 and as you can see from the chart at point #1(in purple), it then fell below the 55-day SMA for the first time in years. It continued to fall, until 2016 When it rallied up to point #2. Here, as you can see, it then tried to climb above the 55-day SMA For a number of months before falling back at point #3.

Since then it has continued rallying to point #4. Here, it gets interesting.

The price has tested and breached the 55-day SMA for three months now. This is the first time since 2013 it has been above this indicator. The second chart shows that gold now giving a positive pulse (indicated by the green bar – furthest right). This is a very slight signal. Oddly, it is also not backed by the positive 14-day directional movement (green line) signal. This may be a result of the crossing of the 55-day SMA with the 21-day EMA – but, whatever the reason, when this is combined with the divergence indicator, on the bottom chart, which shows a gradual rise since the red dot indicator, of 31st January, it shows a definite change in sentiment.

What does all this mean then? At the moment over 30% of S&P 500 stocks are trading below their long-term averages. At the beginning of November, the number of stocks above their 50-day average was the fewest in over a month. November 18, 1999, was the only time the S&P 500 was this high, with with few advancing vs. declining stocks. This is brand-new territory for the 21st century.

S&P Weekly Chart
S&P Weekly Chart

Briefly, the last two weeks have been negative for the S&P 500 (point 1) in purple on chart). Not hugely so – but noticeable. At point 2) the positive (green) 14-day directional movement indicator is falling, and the negative (red) is rising. The 14-day ADX itself (blue) has stalled after an upward run since September. Also stalling is the sigma wave count, again, slight, but noticeable.

On the S&P 500 daily chart, the 21-day EMA (blue line) is being tested now for support. This is the first time since September the price has fallen low enough to challenge this indicator.

What happens next is anybody’s guess – but you can be sure gold will ride the storm – whatever the outcome for stocks.

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.

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