Before we get all excited, I want to point out that gold has gone nearly vertical since flipping the calendar to 2015. Momentum indicators are way overbought so don't be surprised to see a pullback to work some of that off. That being said, check out the volume trend during the recent rally...this is for real. Volume is accelerating right along with price, exactly the confirmation you want to see as a technician. Next, its 50 dma is starting to curl higher for the first time in 6 months. Lastly, I've drawn a descending trend line from last March ($1380ish), touching the highs from July, to the present. Then, I also drew a horizontal "battle line," if you will, which represents lots of overhead resistance in the $1280 neighborhood. In yet another coincidence, both the descending trend line and the horizontal battle line converge at the present moment. Typically, this would represent a formidable point of resistance. Typically, however, is the key word. Look what gold did today. It didn't even flinch as it blew through $1280 on it's way to $1294, the price as I type this.
The short-term takeaway: everything I'm looking at tells me the short-term trend has firmly reversed higher. I would expect some volatility in the very short term given the over bought condition on the RSI and MACD as well the double point of resistance described above. Over the next few months, however, I strongly believe that gold will make its way to $1380 to fulfill the price target from the IHS.
I've circled the volume from the last four months to show that big investors are stepping in and supporting price in the $1150 area. Note how large volume was absent on the previous intermediate lows from July and December 2013. This tells me that there's something special (unique) about $1150 and the smart money knows it.
The last thing I'll mention on the weekly chart is that price is hurdling towards a significant area of congestion highlighted by the green box. The previous three rallies failed within its bounds which means it's likely that there are investors out there just licking their chops to unload positions anywhere close to break even. This is a normal phenomenon in any traded asset so it shouldn't be seen as a cause for concern (if you're a bull). If the market wants to take price higher, it will just have to work a little harder to overcome all of the overhead resistance.
The mid-term takeaway: over the next 6-12 months I expect gold to take a run at $1450 which marks the peak of the August 2013 rally and the top border of the green box. It will no doubt be a battle, but given the sharp trend reversal and the supporting volume, I believe it's a very real possibility by the end of 2015.
While that seems like a lot in the context of a bull market, it's nowhere near unheard of. Take Apple, the darling of the last decade, for example. On a split-adjusted basis, Apple rose from a low of $0.43 in 1997 to over $5.00 by March 2000. In the span of 2.5 years, Apple's stock rose by almost 1,200%. Then, from March of 2000 to April 2003, the stock proceeded to fall back under $1.00, an 80% decline. The bull run was over, right? You already know the answer to this, but hell no, the bull was just getting started! From 2003 until just last month, Apple's stock rose an astonishing 12,400%. If you threw in the towel as an investor in late 2002 or early 2003, you would have missed one of the greatest bull runs in history.
Now, I understand that Apple vs. gold isn't a perfect comparison, but it illustrates the point that a 40% decline during the course of a bull run, just as we've seen in gold, is perfectly normal. Now take a look at the chart above. I've drawn a long-term trend line off of the lows from 2001. Each arrow marks a period of time where the price was supported by this line. Each time it was touched, the validity of the line strengthened. This line was intact for nearly 14 years, until it was breached just a few months ago. Everyone was saying that once gold fell below $1180, then stops would be triggered and the price would flush down to $1000, perhaps even lower. But curiously that's not what happened. Gold hit a brick wall in the mid $1100s and simply refused to go lower. Volume kept picking up, but the price didn't budge. The magic powers of $1150 kicked in and gold held its ground.
This past month, gold decided it had had enough down there and turned tail higher. Sitting today at $1294, it's now $130 higher than the low from just a couple weeks ago. Not only that, but long-term momentum indicators are now turning higher. Look at the MACD just trying to make a positive cross for the first time since 2011. That would be a huge accomplishment for the bulls, to turn the monthly MACD positive. RSI has tread water for the better part of two years and now is making a charge for the mid-line, something it hasn't been above since early 2013.
Lastly, the price of gold is approaching a massively important level. Remember the $1380 price target mentioned above? Well that is also the underside of the long-term trend line that was violated just a few short months ago. If the price of gold achieves that price target, then one of two things will happen: 1) Price is turned back and gold plunges to somewhere around $900, the next level of historical support; or 2) Price breaks back above that trend line, reconfirming the long-term bull market while painting one of the most epic bear traps I've ever seen.