Since August, gold and silver have been in a long drawn out sideways consolidation phase and over the past few weeks have trended down to the lower part of this range as US long-term Treasury bond yields have ticked up. However, on Friday, bond yields made a new high for the year while gold gapped down only to turn up and rally into the close. This action suggests that gold has reached an oversold condition and is ready to start to go back up towards at least the top of its consolidation trading range. Check out the chart.
In fact, we can argue that gold actually reached an extreme technical oversold condition this March. It’s RSI went below 30 and it has given back 2/3’s of the gain it made from April to August of last year. Not only that, but gold also fell to its lower 200-day Bollinger Band, which typically acts as a long-term support area. Gold may churn for a few days or even a week around $1800, but look for it to rally back up to at least $1900 this spring. That will provide nice boost for mining stocks from current price support levels. This week’s FOMC meeting could end up being a catalyst.
I have put the TLT ETF on the bottom of this chart so you can see how while it has fallen in the past two weeks gold itself has trended up, showing us a positive divergence for the metal is in play.
Meanwhile, in the gold futures market the latest commitment of traders report shows that commercials bought long gold futures contracts while liquidating some of their short futures positions. That’s a sign of smart money accumulation and the commercials have reduced their gold short position to its lowest point in three years.
A move in gold towards $1900 will easily take silver above $30, because silver has been outperforming gold in the past few months. Look for silver mining stocks to make a nice move from here too.
I may hold a live trading session around 3:00 PM EST. Just come back to the home page wallstreetwindow.com a few minutes before then to join in.
If you have any comments or questions share them by scrolling down to the bottom of this page to the comments section below.