If you take a close look at the chart above you can clearly see that the spot gold price has successfully broken above the longer term down trendline since this mini bear market in gold started in March of 2008.
Despite this bullish action there is still a lot of talk that gold will break down again and maybe go to 850 or somewhere near that level.
I have a hard time believing that at this point. I would rather just trust this simple chart which is saying to me that a successful break of the bearish downtrend has occurred and so now it should be assumed that we should eventually get continuation to the upside and probably at a faster speed than usual because there is zero resistance on the left side of the chart above 1034.
There is still a possible bearish scenario, I cannot deny that. The volume today on the GLD ETF was only about 20 million shares, and the swing high today tested the swing high of February 2009 which had about 43 million shares. From a volume perspective this is not a good sign because we want to see swing high tests done on equal or greater volume to confirm the trend.
So it is a conflicting signal. In spot gold we closed above that February 2009 swing high and says we could go higher still.
Undoubtedly at some point there will be a down side correction and I am ok with that as long as it does not break below this longer term blue down trendline in force since March 2008. If it does break down below there I may have to reconsider my bullish attitude and at the very least put it on hold. But as long as we move above this line the bulls should be in control in my opinion.
The daily, weekly and monthly MACD are all positive and bullish so it continues to be difficult for me to believe any bearish scenarios.
On the contrary I think gold is probably the best place to be going into the end of the year and early next year. It has basically been going sideways for a year and a half and has a large triangle that we just broke out of that was also basically sideways action. This is a lot of cause for a big market move.
The broad market on the other hand has already been going straight up for many months now and maybe by the end of this month or next will be ready for a big downward consolidation. So the risk does appear to be much much higher in the broad market (sp500,DJIA,Nasdaq).
It is also worth mentioning again that the MOST bullish seasonal time frame for gold is the second half of September which is what we are about to enter right now. If those seasonals kick in on time, we at least have the potential for a massive upside move in gold.
So again, I would rather keep it simple and trust the break of the bear market trendline in gold. The low volume today on the GLD is a concern however and we need to see what type of downside reaction it might cause if any next week.