By Nigam Arora
There’s recently been a big focus on gold’s price moves. What happens next to the price of gold is more important. There is a potentially binary event ahead.
Let us explore the issue with the help of two charts.
Please click here for a weekly annotated chart of SPDR Gold Shares /zigman2/quotes/200593176/composite GLD +0.02% /zigman2/quotes/200593176/composite GLD +0.02% an exchange traded fund (ETF). Please click here for a daily annotated chart of the same ETF.
Please note the following:
• Gold has broken above the strong resistance zone shown on the daily chart. This is bullish.
• Gold trades around the clock. However, that is not the case with the gold ETF. The daily chart shows a gap open above the resistance zone. This is highly bullish.
• The move in gold occurred on good volume on both daily and weekly charts. This is bullish.
• The weekly chart on gold shows a bottoming pattern. This is bullish.
• The relative strength index (RSI) on both daily and weekly charts is overbought. This is bearish in the short term and indicates a pullback if the news flow stops being supportive.
• The weekly chart shows that, for the long term, gold is still in the resistance zone. For gold to go to a new high, such as $2,000 an ounce, gold will have to decisively break the top band of the resistance zone shown on the weekly chart.
• For very short-term trades, the top band of the resistance zone shown on the weekly chart is a potential target.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
Three events have accelerated gold’s rally.
1. The European Central Bank (ECB) unexpectedly turned more dovish than the consensus.