Gold continues to build towards its breakout from a massive 4-year long base pattern. This is likely to occur when the dollar breaks down from its topping pattern, and is expected to lead to a bullmarket that will dwarf the last one from 2001 through 2011, and may be given a tailwind when the cryptocurrency Ponzi scheme implodes. In some quarters gold is being described as having broken out already, as are gold stocks, but they haven’t yet, as we will see, and we will also look at evidence that points to the probability of a short to medium-term dollar bounce and a pullback in the Precious Metals sector before the big breakout occurs.
On gold’s 10-year chart we can see its fine giant 4-year long Head-and-Shoulders bottom approaching completion, with the price rising up in recent weeks to the broad band of quite strong resistance at the top of the pattern, partly due to tensions over N Korea. These are expected to ease, which will make a short-term correction back more likely. Before leaving this chart note the volume build on the rally out of the Right Shoulder low of the pattern, and the strength of the volume indicators shown, especially the Accum-Distrib line, which rather amazingly is already at new highs. This certainly bodes well for the longer-term outlook.
Over the near-term, however, various factors indicate that the probability of a reaction back is high. On the 6-month chart we can see that last week the price rose up to the top of its uptrend channel where a prominent “spinning top” candlestick formed on Friday, with the RSI indicator critically overbought, making it likely that gold will react back at least to the lower boundary of this channel. The overbought MACD and sizeable gap with the moving averages also increase the risk of a reaction.