Gold moves into a 'zombie state' as the usual spurs fail to impress

  • Gold has shown weak trending activity despite some "goldbug" predictions.
  • However there are some bullish signals that suggest a slow breakout higher.

The defining feature of the gold price chart is that it has taken so long to go nowhere. Gold appears to have slipped into a zombie state, largely unmoved by a weaker dollar, or interest rate predictions or any world crisis.

Gold bars at the Austrian Gold and Silver Separating Plant in Vienna, Austria.
Leonhard Foeger | Reuters
Gold bars at the Austrian Gold and Silver Separating Plant in Vienna, Austria.

Gold shows weak trending activity and poor support levels. There are short-term trading opportunities, but the chart is a long way from more optimistic "goldbug" predictions to a return to previous highs above $1,600.

Gold has seen a broad trading band between $1,210 and $1,350. The breakouts above $1,350 in July 2016, and more recently in September 2017 proved to be weak. There is simply not enough strength in the trend to keep prices above the $1,350 level.

The current consolidation near $1,350 offer a little more hope, but it is not a strong breakout. The consolidation activity is not using the $1,350 level as a support and this is a bearish signal.

Despite this weakness there are two bullish features in the chart that suggest a slow breakout may develop. The first bullish feature is the way prices have generally clustered in the upper half of the trading band since September 2017. Gold prices have not tested the lower edge of the trading band near $1,210 since July 2017. This gives an upward bias to the price activity.

The second bullish feature is the steady separation in the long-term group of averages in the Guppy Multiple Moving Average indicator. This shows a reasonable degree of investor buying.

This is not a strong trend. In December 2017 the price dropped below the long-term GMMA. This shows that GMMA investor support is not strong. The danger is that the GMMA will not act as a support level if there is a pullback in the gold price. This is why the uptrend is weak.

AP

Currently there is a high probability the gold price will retreat from $1,350 and retest support around $1,290. This is the short-term outlook and it offers short-term retreat and rally trading opportunities.

We use the ANTSSYS trade method to extract good returns from this behavior.

The long-term outlook is mildly bullish. The general upwards bias in the gold price starting in January 2017 suggests a weak and slow uptrend with a long-term target near $1,490. This is a six to twelve month outlook. This target is calculated by measuring the width of the trading band and projecting it upwards.

A rise to this level is most probably a slow and unstable move with many tests of GMMA support.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

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