- As gold has chopped sideways for the past 12 months, its RSI (relative strength index) and MACD (moving average convergence divergence) began trending upwards on a very consistent linear basis as denoted by the blue lines in the top and bottom panels. Oftentimes you will see this occur when a significant trend reversal is underway. It's no guarantee, but it's worth noting when you see it.
- Over these last 12 months as the price chopped along, it carved out a textbook "inverse head and shoulders" bottoming pattern. According to Investopedia, this is a chart pattern used in technical analysis to predict the reversal of a current downtrend. This pattern is identified when the price action of a security meets the following characteristics:
a) The price falls to a trough and then rises.
b) The price falls below the former trough and then rises again.
c) Finally, the price falls again, but not as far as the second trough.
I've underlined the "shoulders" and the "head" to make it clear in the chart. As you can see, gold has just finished forming a very tidy pattern.
Based on the two points above, I think I can make a strong argument that the downside risk from its current price is limited. That being said, however, the price is still ping-ponging within the range of the last year. What bulls want to see is for the price to break definitively up and over both green dashed lines - which are previous intermediate peaks and therefore should act as resistance. Once that happens, we'll know with much more confidence that a long-term bottom has been put in place.