Gold is exhibiting an untidy uptrend in price with the potential to breakout above the critical long-term resistance level near $1,364 and move toward $1,550.
It's the untidy nature of the uptrend, and the lack of confirmation from related commodities, that calls for more caution in trading gold.
The uptrend that started around December 2016 has not been a steady or well-defined trend. On the weekly chart, the Guppy Multiple Moving Average indicator relationships show a weak uptrend. It's weak because the gold price oscillates dramatically around the long-term GMMA. This is whipsaw activity taking place against the background of a slowly rising trend.
The long-term GMMA provides an insight into the way investors are thinking: When it is compressed, it suggests weak investor support. Strong investor support for a trend is shown by wide and steady separation in the long-term GMMA. That characteristic has only developed in the past three months. The separation is not very wide and that suggests there is not strong investor support for the rising trend.
The second feature that contributes to the weakness of the trend behavior is the placement of the uptrend line. This starts from the low of December 2016, but the second anchor point for the uptrend line does not appear until January 2017. That means the position of the trend line is not well tested and that, in turn, means the uptrend is not well defined. The current value of the uptrend line is near $1,305 and that is also near to the value of the lower edge of the long-term trend line.
That is bullish because it shows two support features which may support the continuation of the uptrend. It is a dangerous feature because a drop below the two support features signals a change to a downtrend. It is critical that the price remain above the trend line for the uptrend to continue.
The third feature that adds to the uncertainty in the gold uptrend is the behavior of the silver price. Usually silver and gold move in tandem, both generally rising and falling together. The rise in the gold price has not been matched by a rise in the silver price. Silver remains stuck in a long-term sideways trading band. This lack of confirmation from an uptrend in silver to match the uptrend in gold signals caution in trading the gold trend.
Traders and investors watch closely for a breakout above $1,364 and a strengthening of the GMMA trend features. However, they remain alert for a drop below the trend line.
Until the long-term uptrend is well defined, traders continue to trade short-term rally-and-retreat behavior. We use the ANTSSYS trading method for this.
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.
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.