Gold: A Deeper Dive

by JDH on November 16, 2019

Let’s start our discussion of gold with some long term perspective:

This is the 20 year chart of gold, and as is plainly obvious, gold began a long, slow, bull market back around the time the dotcom bubble burst, with gold in the $250 range.  There was a pull back in 2008 when the credit crises and real estate implosion caused investors to sell whatever they could to raise cash, but by May of 2009 gold had made new highs, and had a great run up to the peak of over $1,900 in September 2011. From there the bear market (within a long term bull market) began, with the bottom touched in December 2015 at around $1,050 an ounce.

So that’s an over 650% gain, followed by a 45% loss.  That’s gold.  Up and down.

The 10 year chart is equally instructive, as it shows two key levels:

First, gold didn’t drop below $1,000 an ounce, as many predicted, so there is a very solid base at $1,000.

Second, the $1,550 level was a solid base between 2011 and 2013, before the price collapsed, and the price did not exceed $1,500 for over 6 years, between 2013 and 2019, until September of this year, briefly.  The previous base becomes overhead resistance, and until gold decisively breaks through that level, new highs are impossible.  (Thanks, Captain Obvious!!!).

Which brings us to the more recent chart, and again, the last two years are instructive (although not as instructive as the longer term charts).  From the bottom in August 2018 gold had a great run up to the magic $1,550 level (touching $1,556 on September 4, 2019), but it’s been all down hill from there, as shown in the red channel, with a series of lower highs and lower lows.

That’s not good.

Are there any encouraging signs?

The Relative Strength Index is at 42, and turning upward, so that’s good news, but unless gold moves through $1,550 any uptick is just a momentary uptick in a medium term downtrend.

As you all know I’m not out there buying gold bullion; I prefer the riskier alternative, which is buying NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, an ETF that holds gold mining shares, and uses leverage to attempt to get 3 times the move in the underlying stocks (both up and down, so it’s a risky play).

As was obvious from the gold chart, the NUGT chart over the last six months shows a base around $25.50, and since the peak in September over $42.50 the picture is not pretty.  NUGT will have to get above this congestion area in order for the longer term uptrend to resume.  The consolidation period may continue for a while, or not, but purchases in the current range are probably a safe bet, with a stop loss around $22.50, just in case.

A final word: here’s a great video on the subject:

“CRIKEY!! (What’s Going on With Gold?) by Grant Williams

Mr. Williams is optimistic on gold, and I agree, in the medium term.

This week?  Who knows.  Check back next week and we’ll see what happened.