The Two Most Important Charts for Gold

Despite the scaremongering…despite the uncertainty…and despite the hundreds of bullish analysts around the world telling you to buy…

Gold’s dream run appears over for now.

With the writing on the wall, gold should hit my long-standing target of US$931 per ounce in the months ahead. Lots of readers have asked me how I got that price target. And after the rally earlier this year, how — indeed if — we will get there.

Let me walk you through it.

The immediate picture — weekly chart for gold

Unlike the majority of investment bankers, stock brokers and fellow financial newsletter editors around the world, I refuse to be bullish on gold — or any resource — just for the sake of selling another newsletter.

I write straightforward, honest analysis in my paid investment advisory, Resource Speculator. And though some people seem to want to ‘shoot the messenger’, the majority of my subscribers appreciate that honesty.

Based on multiple fundamental reasons, which I’ve outlined for over three years, I’m short term bearish and long term bullish on gold. To see why, I’d like to draw your attention to a couple of charts. As the saying goes, the tape never lies!

Have a look at the weekly chart on gold below:

Source: Resource Speculator/TradingView
Click to enlarge

You have to learn to ignore the day to day news. It is just noise. The weekly chart will show you the trend. And the chart above shows that gold is not in a bull market — not even close. Despite its prolific rise earlier in the year, gold remains trapped in a major downtrend. This is shown by the blue lines.

Digging a bit deeper, gold hit major resistance (upper blue line) on the Brexit and trickled along it for a few months this year. The resistance dates back to the 2011 high of US$1,900 per ounce.

The lower blue line shows the support. It lines up with the 2011 low of US$1,307, the 2013 low of US$1,180, and last year’s low of US$1,047 per ounce. Today, the blue line stands at around the US$1,000 per ounce level. I find that level particularly interesting.

A break of the green horizontal line on a weekly closing — another major support and resistance level for the year — would confirm a move down towards the blue support line.

The big picture — monthly chart for gold

Now check out the monthly chart.

Source: Resource Speculator/TradingView
Click to enlarge

The monthly chart also shows you the main trend, eliminating even more noise. In other words, you don’t see the week to week volatility. The monthly chart confirms gold is locked in a short term bear market dating back to 2011.

However, and this is important, the chart above also shows you that gold is in a long term bull market. Yes, you read that correctly.

The long term bull market is shown by the green line, which dates back to the breakout in 2002. The US$931 per ounce target is shown by the green uptrend line on the monthly chart. Indeed, it isn’t a ‘made up’ number, as some sceptical readers have wondered.

Assuming that gold cracks below the US$1,000 per ounce level (shown by the lower blue line on the first weekly chart), most investors, and the mainstream financial news, should turn very bearish. Remember, last year most pundits called gold a ‘pet rock’.

The lower we go in price, expect the negative forecasts for gold to return with a vengeance.

In that case, the impact of a breach of the US$1,000 per ounce level shouldn’t be underestimated. We humans like nice round numbers. This is an extremely psychological level. I’d expect many to sell their positions instantly at that level, thinking that gold will crash even lower and never return to a bull market.

That’s the fuel needed to see a major capitulation to the downside and ultimately a major bottom.

Remember, as gold continues to fall, a lot of short sellers will start covering their positions. Short sellers aim to profit when gold falls, which is the opposite of buying low and selling high. When short sellers start locking in their profits (‘buying’ back their positions), it should support gold by providing much needed buyers near the low.

Will that be at US$931 per ounce?

There’s a good chance looking at the price technicals.

But whether it’s a bit higher…or a bit lower…I’ll recommend the best gold producers and developers inside Resource Speculator when that major low is confirmed. Those gold stocks should bank hundreds of percent in gains — or more — during the bull market.

In the meantime, I’ll keep recommending the best speculative mining stocks on the ASX. To find out more, go here.


Jason Stevenson,
Resources Analyst

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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