Long-Term Studies Indicate Potential for a Multiyear Rally

The first quarter of 2018 concluded today, and as far as gold pricing goes, this marks the third consecutive quarter of positive price gains. However, first-quarter gains were the smallest gains for any quarter over the last seven years. Gains this quarter were a tepid 1.8% with gold moving from $1300 to close today at $1325.

It is also clear when looking at a quarterly gold chart that we have been in a defined but mild uptrend since October 2015.

A Heikin-Ashi chart reveals that this is the fourth quarter in which gold has closed above the midpoint of the prior quarter.

One of the more revealing technical studies when looking at a quarterly chart is the MACD (moving average convergence divergence). This MACD uses a 13-cycle fast length against a 33-cycle slow period, with the signal smoothing set at nine.

What it reveals is that for the first time since January 2013 the moving averages have converged, and the shorter-term moving average is about to cross above the longer-term moving average. This would create a golden cross for the first time since October 2001.

The golden cross which occurred in 2001 occurred when gold was trading just below $300 per ounce. More impressively this marked a point in time in which gold began an extended multiyear rally which concluded with gold trading above $1900 in the middle of 2011.

In 2013 the MACD lines crossed (dead cross), indicating a long-term key reversal or pivot point which signaled that a multiyear correction was in play. The two-moving average is used in the study continue to widen up until the beginning of 2016 when they began to converge.

Currently, the moving averages in the MACD have come into parity and it appears as though, for the first time since 2002, the short-term average will cross above the longer-term moving average.

Obviously, we are looking at such an incredibly long-term study that it lags behind current market action. It can only indicate a key reversal has occurred months after the pivot point. It contains no information that a trader or investor can use for short and medium-term trading decisions.

It is only useful in looking at the big picture and overall state of the market. Nonetheless what it can reveal is the beginning of an extended multiyear rally in gold, and that finding is truly exciting.

Wishing you as always, good trading,