The Fork in the Road for Gold

Today the gold price jumped higher on big volume. While that is certainly a plus, gold still has quite a bit of work to do before we can feel more confident that it is in a renewed bull market.

Gold has essentially been trading within a descending Schiff Pitchfork since January of 2014. Note, I said descending.

Since September of last year gold had been unable to pierce above the mid-line (middle red line of pitchfork). To me that showed gold had very weak upward price momentum.

Today, it looks like that weakness may be on the verge of changing. I would really like to see what the gold price does tomorrow in order to have a better idea.

However, it the price is able to hold convincingly above the mid-line of the pitchfork, it would be a positive sign for the gold price.

Gold crossed another important "line" today also by moving above the 0.50 Fib Retracement Level of $1,235.30. This level had been giving gold some problems. So, again, the fact that gold was able to move strongly above $1,235.30 speaks to some strength that gold is showing that it hadn't been showing.

The next big tests for the gold price are $1,295.40 and then right around $1,350.00. $1,350.00 is right at the upper parallel channel of the Schiff Pitchfork and may present some resistance to any gold price run higher.

An additional obstacle to the gold price running higher is the RSI. While RSI isn't overbought yet, it is nearing overbought. RSI could become overbought and stay there for a week, maybe two at the outside, but it will limit gold's march higher at some point - probably right around the point that gold makes a run at breaking out of upper parallel line of the pitchfork.

An important thing to remember about pitchforks:

Andrews believed that market price action would gravitate towards the median line 80% of the time, with wild fluctuations or changes in sentiment accounting for the remaining 20%. As a result, the overall longer-term trend will (in theory) remain intact, regardless of the smaller fluctuations. If sentiment changes and supply and demand forces shift, prices will stray, creating a new trend.

So, it's much more likely than not that gold will remain in its current trend, at least until it doesn't anymore.

It's probably safe to take the day off from curbing your gold enthusiasm, but gold does have some work to do in order to break out of the descending Schiff Pitchfork.

Bottom Line: A few day move upward in the price of gold does not a new bull market make (am I channeling Yoda?). Until gold can convincingly break higher out of the descending pitchfork on good volume, we shouldn't assume too much about just high the price will go.