GOLD: Time for Pullback/Consolidation?

Since the December lows, $GOLD has moved up +20%, and the advance this month has been nearly vertical (as in parabolic). At this point there are some signs that price needs to consolidate or pull back.

Looking at the last three year's price pattern, we can see it has been moving more or less in a slightly declining trend channel, but this week price broke above that channel, indicating that it is possible that the medium-term trend may be shifting from falling to rising. However, the technical expectation after a breakout is for price to pull back toward the point of breakout. If a full retest of the breakout point takes place, 1200 would be the downside target.

The red and green arrows on the PMO panel show us the existence of a fairly regular cyclical pattern, and it appears that another cycle top is due.

Sprott Physical Gold Trust (PHYS), a closed-end fund that owns physical gold, is selling at tiny discount, showing that sentiment may be shifting to positive. This would be an encouraging sign for the bulls. We think of sentiment indicators as being contrarian, but they are only contrarian when they hit extremes. Otherwise they should reflect realistic investor expectations. For example, if price is trending up, investor outlook should be modestly positive, reflecting the obvious.

Another sign that the rally may take a break is the high PMO reading--it is the highest reading since the 2011 price top.

CONCLUSION:  The recent price breakout makes me think that the long price decline for gold may have ended; however, gold is very overbought, and technically speaking, we should expect a "pause to refresh." Because of the breakout, my expectation is that price will not decline to where it challenges the December lows. Rather I am looking for a pullback and consolidation above the recently penetrated declining tops line.

Technical analysis is a windsock, not a crystal ball.

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