The gold price starts the new quarter with a fresh all-time high around $2,265.78 on Easter Monday.
The gold rush is slowly flaring up. YTD, gold has risen more than 10%. Since the intraday low around $1,810 per troy ounce on October 6, the precious metal has risen in value by more than a quarter. The gold price is therefore technically in good condition.
Major technical signal occurred last month after breaking the old all-time high from August 2020 around $2,075.35. At this level was the neckline of a head-and-shoulders formation (see explanation of this pattern below). I also discussed this outbreak here at the beginning of March: https://www.iex.nl/Artikel/791890/Goud-breekt-uit.aspx
Technically, the gold price has left a long period of trouble behind it. Since 2020, gold had fluctuated quite directionlessly, roughly between $1,615 and $2,075.
Today I’m looking at different charts of gold: short-term, long-term, and multi-year.
Gold short term
Gold is in excellent shape in the short term. At the beginning of March, the hurdle broke $2,145.86, where the top is from early December.
Subsequently, a nice pullback bottom has formed above that former resistance around $2,145.86. Often a pullback bottom forms the starting point for a new sharp rise.
Gold has strong secondary support around $1,973.09 (December 13, 2023 bottom).
Gold long term
Gold has convincingly managed to break the former resistance $2,075.35 (formed on August 7, 2020). This has created a long-term buy signal. I have previously pointed out in this column the potential head-and-shoulders formation that has formed over the past 4 years.
It is striking that two higher bottoms have formed around $1,804. One in March last year and one in late 2023. These higher bottoms function as the right shoulders in the head-and-shoulders formation. You can find the explanation of the head-and-shoulders pattern below in this blog.
With the break above $2,075.35, a four-year barrier has been broken and $2,500 becomes the next upside price target.
The rising 200-day line of the gold price validates the positive technical condition.
Multi-year: very bullish
As mentioned above, with the breakout above $2,075.35, gold has completed a head-and-shoulders formation to the upside. This has generated a buy signal.
The higher lows around $1,804 (R1 and R2) form the right shoulders, the left shoulders are around $1,687 (L1 and L2).
The head of the head and shoulders formation is around H, the October 2022 bottom at $1,614.
What is still missing is the classic pullback, i.e. an intermediate pullback to the breakout point $2,075.35. This possible pullback correction, to PB2, is plotted on the chart below with the green dotted line.
We have calculated the conservative price target after this breakout at $2,500.
The price target is calculated as follows:
- The distance in points between the head ($1,614) and the neckline ($2,075.35) is $461.
- Added above the breakout point $2,075.35, this gives an initial price target of $2,536.
- We have rounded this price target to $2,500.
After calculating the progressive price target, we calculated it at $2,700.
The price target is calculated as follows:
- The percentile distance between the head ($1,614) and the neckline ($2,075.35) is 28.6%
- Above the breakout point $2,075.35, a 28.6% increase yields an initial price target of $2,668.90
- We have rounded this price target to $2,700.
An explanation of these two different price target calculations can be found at the bottom of this blog.
The gold price had also successfully completed a head-and-shoulders formation in 2019. That was in 2019, when the neckline N was broken. The left shoulders of this pattern are marked LS1 and LS2, the right shoulders as RS1 and RS2, and the head as H.
This breakout was subsequently confirmed by the higher pullback bottoms at PB. I reviewed this successful head and shoulders formation in July 2019.
Explanation of head and shoulders formation
The head and shoulders formation is one of the best-known price patterns in technical analysis. The head and shoulders formation can occur at the end of a long descent. Sometimes, as with the gold price, the head and shoulders formation is an intermediate step, i.e. a temporary interruption in a long-term rise.
A characteristic of the head and shoulders formation is that it always consists of at least three bottoms, of which the middle one (the head) is the deepest.
The head and shoulders formation usually takes place in several fixed steps.
The example chart below shows those steps as follows:
- The first signal occurs when a peak is formed at the same height (B). In fact, the strong rise above bottom a is also a potentially positive signal.
- A resistance now forms around AB, this is called the neckline. Bottoms a and c form the shoulders of the head-and-shoulders formation, bottom b is the head.
- The head and shoulders bottom formation is completed when resistance AB is broken.
It is necessary that at least two tops be broken to complete a head-and-shoulders bottom formation. There could also be more. The broken tops do not have to be at the same height.
The head and shoulders bottom formation is often used to calculate price targets. To do this, we first calculate the distance between the head b and the neckline AB. We add the result to the neckline. The price target – point D – can then be calculated.
There is a conservative and a progressive method.
The conservative price target is calculated as follows:
- We calculate the distance in points between the head and the neckline
- This difference in points is added above the breakout point (neckline)
The progressive price target can be calculated as follows:
- We calculate the percentage distance between the head and the neckline
- This percentage difference is added above the breakout point (neckline)
Try Tostrams Premium for 3 months for only €19.95 (73% discount)Would you like to receive technical stock analyzes and concrete buying tips every day? Then subscribe to Tostrams Premium. With a universe of more than 500 different stocks, commodities, currencies and indices, our specialists ensure that you don’t miss anything. You can also set up personal alerts so that you are notified when a technical breakout occurs or an important support level is broken. This means you will no longer miss any purchasing opportunities! Furthermore, as a Tostrams subscriber you automatically get access to no fewer than four model portfolios with the best shares for the Netherlands, Europe and the US and ETFs. The Tostrams portfolios have been beating the market since 2006. Would you like to try Tostrams.nl? Then go to tostrams.nl/actie and read our technical analyzes for three months for only €19.95. That amounts to a discount of no less than 73%. |
Also read: Gold prices quietly reach all-time highs, but a real gold rush has yet to strike
