Traders and investors noted and celebrated Gold’s alleged breakout from a its downtrend that began in 2011. Tuesday Gold closed at $1297/oz after nearly touching $1299/oz. Gold appeared to break its downtrend on the many charts that made the rounds. However, upon further inspection, there was no breakout from the 6-year downtrend on the weekly chart nor is Gold likely to sustain its strength in the days ahead.
First, let’s take a look at Gold’s weekly line chart on both a log scale and normal scale. Weekly charts are more significant than daily charts. We can see (in the following chart) that Gold has not come close to breaking the downtrend line that began in 2011. That trendline resistance comes into play at much higher levels. Gold has appeared to break the trendline resistance from the 2016 highs but it could prove to be a false breakout if Gold can’t close above $1300/oz.
There are two things to highlight in the next chart. First, on the weekly chart we can see that Gold closed the week well off its high of the week. A bar or candle chart shows a weekly reversal. Gold closed the week below its April closing high and even below last week’s close! Second, the real important resistance for Gold is not the trendline from the 2011 peak but $1300/oz as well as the peaks from 2013 and 2014 when Gold began its attempt to bottom. Gold will only be in the clear when it can takeout $1350-$1375/oz.