Gold is clearly coming off extreme oversold levels and a…
Today I am looking back at previous major lows where sentiment was in the toilet, technical indicators were extremely oversold, and positioning was bullish for signals that the bottom was in and the next rally has begun.
I’m using the 4-Hour chart to better illustrate what to look for when Gold has bottomed and is heading higher and to be able to identify the change in trend sooner than on a daily chart.
As you can see from the circles on the RSI and MACD Histogram, Gold was extremely oversold when it bottomed on March 16. #1 shows the peak of the first bounce. #2 shows that this was followed by a higher low. Then that was followed by a higher high at #3. In fact, it gapped higher on two occasions, signaling that Gold was breaking out to the upside. A series of higher lows and higher highs ensued thereafter, clearly showing the trend had definitively turned to the upside. The break of the prior high at 159 was just the icing on the cake. Then it took off to a new record high at 2089 or 194.50 in GLD terms.
In summary, we are looking for a series of higher lows and higher highs and a surge upwards to the second peak. A break of resistance is the icing on the cake.
Just as in 2020, you can see from the circles on the RSI and MACD Histogram (and this time the MACD Line also) Gold was extremely oversold when it bottomed on August 15, 2018. #1 shows the peak of the first bounce. #2 shows that this was followed by a higher low. Then that was followed by a higher high at #3. It gapped higher on five occasions, signaling that Gold was breaking out to the upside. A series of higher lows and higher highs ensued thereafter, clearly showing the trend had definitively turned to the upside. GLD proceeded to rise to a peak of 159 in March 2020. Gold rose from a low of 1167 to 1700.
By now, you should be seeing the pattern associated with major lows and what signals the trend has changed to the upside. Gold bottomed at 1124 in December 2016 and then rose to 1369 in April 2018.
Suffice to say that Gold rose from 1045 in December 2015 to 1377 in July 2016, one of the biggest and fastest rallies in Gold’s history.
We are clearly coming off an extreme oversold condition, also seen on the daily and weekly charts. If we get a higher high above 162.13 (currently 162.04) and gap up in the process, the short-term trend has turned up and the odds that the bottom is in place increase significantly.
On the contrary, if we fail to get that surge higher and fall to a lower low, we have to start all over again.
Switching to the daily chart for Gold:
We’re clearly coming off extreme oversold levels and a positively divergent lower low. The first level to take out is the recent peak at 1738, then 1752, to increase the likelihood that the bottom is in. But getting back above the 200-day moving average would be a huge sign that new record highs are on the way, and a break above the prior high of 1883 would be confirmation, imho.
In summary, we need to see a change in trend to the upside, a series of higher highs and higher lows, just as we did at 1450 in March 2020, 1167 in August 2018, 1124 in December 2016, and 1045 in December 2015.