Gold is Flagging Out to a Springtime Pivot?

Gold has been trading in a tight range since February of this year. Silver ultimately mirrors gold in price performance, but it has larger percentage moves due to its lower price point. There’s been a lot of speculation published recently regarding silver’s Commitment of Traders (COT) report being very bullish, but as I noted in my last analysis published on Mar. 5, silver’s poor price action as of late does not yet reflect anything the COT indicates. So for today, we’re leaving silver behind and focusing solely on gold, as a looming breakout price level is much closer with it than silver. In addition, despite pervasive volatility witnessed elsewhere in financial markets, gold has remained stable while chopping sideways. The price action is forming a strong base to launch out of as it nears a time period where seasonal winds typically launch gold and silver into upside runs for the beginning of spring. First, let’s take a peek at two different views of the gold COT report, then move to a technical analysis of the recent gold price action. As always, to view a larger version of any chart, right-click on it and choose your “view image” option.

Here is a one-year spread of the COT report as of the Mar. 13, 2018 data dump, overlaid with the gold spot weekly chart as of the Mar. 16 close. As usual, when Large Speculators (Hedge Funds) are long, the Commercials (Bullion Banks) are short, and vice versa. The current COT visual is reminiscent of what occurred in the fall of 2017. I don’t expect any major change in positioning until new Fed Chair Jay Powell takes the helm of the FOMC meeting that is scheduled to take place this upcoming week. We may have “sell the rally, buy the news” going on.

Here is a long-term perspective on the COT report vs. price from 2008-present. Note that the Stochastics at the bottom right are turning upward.

I will focus on the daily chart this week, so here is the weekly gold chart analysis to review, published on Mar. 5…

“Gold is at status quo since the last analysis, with one pattern addition. There are no big moves to the upside or downside – only a consolidation chop just below the $1,380 ceiling, where a confluence of resistance has evolved for five long years. Let’s review the dominant patterns. Trendlines drawn down from 2013 and 2011 were breached, retested, and decisively taken out to the upside with volume. A bullish Inverse Head & Shoulders drawn back from 2013 has a Neckline slightly below a Fibonacci level of $1,380. The right shoulder has formed a bullish Cup & Handle. The right shoulder also had a successful, slanted Inverse Head & Shoulders pattern within the Cup. A bullish Golden Cross took place during Sep./Oct. 2017. All moving averages are back below the current price action and are spreading and turning upside. And lastly, a new bullish Flagpole & Flag has formed since the Dec. 2017 pivot following the FOMC’s .25 interest rate piker. The DMI-ADX remains positive, though indecisive in direction. The StochRSI is beginning to roll over to the negative. Volumes have steadily increased since the low put in back in Dec. 2015, and each move upward in price is accompanied by rising volumes, and downward price moves are accompanied by falling volume. The volume patterns in relation to the Flagpole & Flag place an exclamation point on that observation. If the seasonal pattern of upward price moves remains true, a final test to punch through the overhead resistance at $1,380 is imminent. I remain Neutral near-term and Bullish long-term. Stay on your toes.”

Gold daily chart, as of Mar. 16, 2018 close…

The pattern of focus right now is the Flagpole & Flag. The flag is tight in its pattern, which is positive, as opposed to loose, which would contain gap-ups and downs, or violations of the upper and lower trendlines. A tight flag performs better than a loose one. The reason the $1,197.53 low printed last year is noted is that upward breakouts from Flagpole & Flag patterns perform best when the flag remains within a third of the yearly high. That is the case we have developing thus far.

The price has found support at the 38.2% Fibonacci $1,316 level since Feb. 7, with no closes below it up until Thursday and Friday of this past week when the price closed slightly below it. Candlestick tails have been riding along the 100 Exponential Moving Average (EMA), and two of their lows have formed the lower trendline of the flag. The Golden Cross that took place in April 2017 has not broken down. The spreads between moving averages have increased and turned upwards and the 300 and 500 Simple Moving Average (SMA) are back in numeral order. Notice on the weekly chart overlaid on the COT up above, price has not closed below the 300 SMA since breaking above it in December 2017. The DMI-ADX remains indecisive, but it has turned to the negative side this past week. The StochRSI is bottoming out, which signals that an oversold condition is occurring. The volumes have had an unusual collapse over the past week, but falling volumes during price chops or falls are bullish because they indicate a lack of resolve.

I would prefer to see the price fall a bit further to around the $1,300 level, hitting the flag’s lower trendline for a third tap, or the 150 or 200 EMA, then decisively pivot upward to create a potential BTFD opportunity as a seasonality uptrend nears. All eyes remain on $1,380 Neckline and Rimline (see weekly chart) breakouts, but we now also have the flag’s topside trendline to contend with. Let’s see how gold reacts to another interest rate piker during the FOMC’s 2pm announcement this Wednesday, Mar. 21st. I remain Neutral near-term and Bullish long-term.

Lastly, a reprint of the seasonal cycle chart.