Could Gold Be The Big Winner In 2019?

• Two Failed Outside Bars
• Long-Term Indicators Tipping to the Bullish Side
• Gold and the Shares Perking Up Against Equities in General
• Silver Setting Up for a Possible Major Breakout

Just before Christmas, I pointed out that the gold price, especially the shares, had experienced an outside day. Going by that observation, along with a moderately overbought short-term condition and some slightly negative long-term technicals, I concluded that (not withstanding a couple of sessions whereby the losses from the outside day would be digested) the price of the yellow metal was likely headed lower.

Two Failed Outside Bars

Charts 1 and 2 show what actually happened. Gold jumped above the high of that “turnaround” session and has been rallying ever since. When a technical event, such as a legitimate bearish outside day, does not “work,” that’s usually a sign of a contra trend signal. Just as upside breakouts typically fail in bear markets, outside bars often fail in bull markets.

Chart 1

The outside day was far more dramatic for the Gold Shares, as shown in Chart 2. The price has yet to take out the high of that day in a meaningful way. However, there are a lot of other factors that suggest that the primary trend for gold assets may be in the process of turning to the upside.

Chart 2

Long-Term Indicators Tipping to the Bullish Side

Chart 3 shows the PPO for the gold price using the 6/15 parameters for monthly data. The orange-shaded areas indicate bearish periods when the indicator is below zero. That means that the 6-month MA is below its 15-month counterpart. The green and two red arrows point out the paucity of fake signals in the 50-or-so years covered in the chart. At the moment, this model is bearish, but you can see that the indicator has started to hook up and is very close to an upside zero crossover. What are the possibilities of that happening?

Chart 3

Chart 4 says that they are pretty good, since both the short- and intermediate-term KSTs are in a rising and not particularly overstretched mode. It certainly looks as if a challenge of that thick green resistance trend line just above $125 is in order. It’s true that the price is above its 65-week EMA, but I would not put a lot of weight on that; there have been numerous whipsaws since 2014 as price has swung to the upper and lower reaches of that 6-year trading range.

Chart 4

Chart 5 also hints that an upside break is possible. That’s because the price experienced a whipsaw move below the red trend line last year, but has subsequently fought its way back above its extension. Clearly an upside breakout has not yet materialized, but the long-term KST, seen in the lower window, has started to hook up. As a result, we are left with a very finely balanced current situation that appears to be tipping to the bullish side. A decisive upside break would require a month-end close above the green line at $1350.

Chart 5

Gold and the Shares Perking Up Against Equities in General

Gold has been under-performing stocks for a while, but that appears to be changing. Chart 6 compares this relative relationship to its Special K (SPK). A strong buy signal favoring gold was given last month, with both series punching strongly through multi-year dashed trend lines. In addition, the ratio itself looks as if it is in the process of tracing out a broadening formation with a flat top. However, in order to confirm this as a valid pattern, the ratio will have to experience an immediate and decisive move above the upper solid green trend line at .55. If it does, that would be very bullish as these patterns, when completed, usually offer a very strong bang for your buck.

Chart 6

That would obviously be a good thing for the relative performance of gold, but Chart 7 shows that it would also be positive for the absolute price as well. In this instance, using the benefit of hindsight, the green shaded areas flag periods when the ratio has been in a rising mode. Looking at the price, you can see that the green-shaded areas usually provide a bullish background. Conversely, with the exception of the brief 2008 sell-off, all the major declines took place under a white background, i.e. a sideways or weakening ratio. If the ratio can break above the extended red resistance trend line and if the price itself trades above that $1350 zone, a very powerful rally would likely follow.

Chart 7

Chart 8 shows that the Van Eck Vector Gold Miners ETF, the GDX, has just experienced a relative strength breakout above a 7-year downtrend line. That action should enable the relative KST, seen in the bottom window, to reverse to the upside. The price itself is slightly above its 65-week EMA, but the real barrier is the 2011-2018 downtrend line. If it can move above that, it would represent another bullish signal for the gold asset complex.

Chart 8

Chart 9 tells us that the die may already have been cast. That’s because the Coppock Indicator, based on quarterly data, turned up a couple of years ago. Previous reversals have been flagged with the green arrows. All were associated with a multi-year rally.

Chart 9

Silver Setting Up for a Possible Major Breakout

In most cases, where gold goes, silver goes too. Chart 10 shows that silver's price could also be on the verge of a major upside breakout. Right now, we have to label the technical position as bearish. That’s because the price is below its 12-month MA and the KST, while stabilizing, remains below its MA.  It has started to nudge above the 2011-2019 downtrend line. However, a month-end close above $16 would represent a more responsible signal, as the downtrend line could legitimately be constructed in several ways. A close above $16 would also take the price above its 12-month MA.

Chart 10

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.