Tuesday, 6 June 2017

Gold's Bull Market Final Technical Reisstance - Part 3

I've been waiting impatiently to write the part 3 - the FINAL part - of this article series of Gold Bull Market's Final Technical Resistance.

Actually, i mentioned in part 2 that the more correct title for this article series should be Gold BEAR Market's Final Technical Resistance because until the gold price crosses above this 6 years long term downtrend resistance line, gold should be considered to be in the bear market, technically.

Gold price chart showing a breakout of a 6 years long term downtrend resistance
Gold chart from 2011 to 07 June 2017 showing 6 years downtrend resistance line.
(Click photo to enlarge)

The gold price is - by definition - in the bear market since Aug 2011 because its price has kept below this downtrend line, UNTIL today (6 June 2017. It would be nice if today is 6/6/2016. So close. Remember SPY = 666, the 2009 low?).

I've noticed lately - in the last few months or so, that the chart that showing this 6 years long term downtrend line appeared in the web in far greater frequency than when i published part 1 of this article series back in 30 July 2016.

This is probably due to the fact that the more times the gold prices hit this downtrend resistance and fail, the more technician will have to sit up and notice, and give it the respect it deserves. Since the height of 2011, the prices had tested this downtrend resistance for no less than 8 times. The price finally breaks out of this downtrend today. This is clearly a very important technical resistance, or else gold prices wouldn't keep on failing at this resistance for 6 years and 8 occasions that separating over wide span of time.

As i'm typing this, the time is NY time 11:30am, and the gold price extends more than 1% gain. Let's get in a closer look with the following chart. There's no mistake about it. We've a blast off. Free at last!

ABX - which i hold - gaps up by 4.3%. Market isn't closed yet. Typically, 1% gain in gold price doesn't translate into more than 2% rise in ABX. Perhaps market is telling us that this is no ordinary 1% rise in gold price. Unless there's an unforeseeable event occurs between now and the market close today that reverses all the gain, i think this breakout is confirmed. I know, i know, i should wait until the market close to write this post. Well, i can't wait...

Gold price chart showing a breakout of a 6 years long term downtrend resistance
Gold chart showing breakout above downtrend resistance line
(Click photo to enlarge)

This is a pivotal technical event that the long suffering gold bugs have been waiting for 6 years to signal that the bear market is over, and the bull market is starting today.

Gold bugs party

Is it to early to pop the champagne corks and throw the bull party?

Yes, there's still much work to be done by the gold prices, BUT this is an important technical milestone, the 1st milestone for the rest of the bull market.

I've been waiting for some catalyst in the form of geopolitical event for the gold to do this ultimate breakout, but neither the French Election nor Brexit nor even U.S. Election last year could do the trick. So this is somewhat unexpected. But when one is considering that US Dollar (DXY) has been falling since the start of this year while 10 Year Bond Yield (TNX) has been falling since mid March this year. And even the stock market is in the weaker seasonality, gold should gather strength on the back of these weakening forces. In fact DXY has fallen BELOW the level in the U.S. Election day. If gold couldn't break out now under these favourable conditions, i don't know when.

I guess there's no coincidence that the gold breakout occurs (since yesterday, but not convincingly) when DXY just falling below the U.S. Election level 2 days ago. Remember that the gold started its resurrection in 2016 when TNX was low. Well, TNX has been headed in that direction in the last 3 months.

DXY price chart showing prices fall below that of U.S. Election Day
Blue line showing the price level of DXY on the U.S. Election (7 Nov 2016)
(Click photo to enlarge)

While there's still a lot work for the gold chart, but today's price action is a very promising.

The 1st work that the gold chart needs to work on is to close above the last peak of $1290 (occurred on 18 April) today.

Is it possible that the price could drop back below this downtrend resistance? Of course, it can. It's natural for the price to come back down to test the downtrend line, and bounce back because it now acts as a support. We wouldn't want to see it to drop back below the downtrend resistance. If it does, this is a false breakout. Will have to wait and see in the next few days. I'm bullish in the medium terms because even a false breakout wasn't possible before.

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