The rally off the January bottom has been exciting for the precious metals bulls (if there are any left) as it has climbed some 30% and confirmed its uptrend forming a series of higher highs and higher lows. Combine that with price being above a rising 200 day moving average and momentum in the bullish zone.
Some may be asking why the reference to a breather? While I don’t put an excess amount of validity into rising or falling trend lines when they come together in a confluence with other indicators, they I find them compelling. In this case gold is running into resistance provided by the falling (red) trend line right at the same time important overhead, horizontal resistance is coming into play. Using the weight of evidence approach, this area is warning we should expect a consolidation at best or pullback at worst.
There is nothing for the bulls to be concerned with here (yet) as we are in a strong uptrend but to take a breather and unwind some of its newly formed overbought condition and refuel for the next leg up. Looking to the left this area has the potential to bring a very large amount of (“I want to get out of this position so I can break even”) sellers so it would not surprise me to the price of gold chop around for weeks and maybe months. On the flip side of that investments that are trending strongly have shown the ability to slice right through resistance zones so what it actually does will only be known in hindsight. In the meantime, and to set the expectation of potential upcoming weakness, gold bulls need to take a chill pill. Because once this is over and price moves above both resistance levels, it should be smooth sailing until $1580.
