Bullish on Gold, but Getting Nervous


On Monday, gold rallied above the top in 2011 and made new, all-time highs. I've been more or less bullish on gold for several years, but it hasn't always been particularly easy, because gold's progress could usually best be described as "tortured." But, in the last two weeks, gold has gone vertical. Along with this, I recently noticed that gold is becoming very popular with the advisory crowd -- I haven't noticed anybody who thinks you shouldn't have gold in your portfolio. That's new.

I always own some gold, but as I said in the title, I'm getting nervous because of the recent vertical move, and gold's apparent recent popularity. Vertical moves always make me nervous, and we'll look at that more closely later in the article. As for the sudden popularity, in addition to what I hear in the media, I also use another, perhaps, more objective tool. Sprott Physical Gold Trust (PHYS) is a closed-end fund that owns physical gold and trades like a stock. Whereas, open-end funds are priced based upon their net asset value (NAV) after the close each day, closed-end funds trade like a stock and can be priced at a premium or discount to their NAV. By monitoring the premium/discount we can get a truer picture of public sentiment for gold.

As you can see on the chart, PHYS has mostly been selling at a discount for the last two months, meaning that the public is still bearish on gold, which is bullish.

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Looking at the weekly chart, we can see that rising trend lines from the 2018 low have steadily become steeper as the rally accelerates. The weekly PMO is overbought. We can also see that steep rallies, similar to the last two weeks, have been digested by sideways consolidations or orderly pullbacks. That would be a preferred resolution to the current vertical structure.

The monthly chart shows that gold has hit long-term resistance at the previous all-time high. While it has broken above the line, we can't consider it to be "decisive" (unlikely to fail) until price reaches 1982. Also, we can see that it has broken the recent positive correlation with the dollar, which is good with the dollar heading into a ditch. Finally, the monthly PMO is well below the overbought level it saw in 2011, leaving it plenty of room to run.

CONCLUSION: Gold has rallied almost 90% from its bear market low, and it is finally attracting some attention. While gold has begun to go parabolic, a normally dangerous condition, it is not necessarily near the end of its rally. The public is not showing feverish interest yet, which leads me to believe that sideways consolidation or an orderly pullback is more likely than a parabolic collapse. Nevertheless, know your stops.

Technical Analysis is a windsock, not a crystal ball.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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