Gold had a very strong week. Because of that it is now in the process of breaking out. If this rally continues it will mark the end of the 6-year bear market.
The U.S. dollar falling to multi-year lows definitely helped gold’s strong bounce from $1200 to the current $1330 level. Although this feels like a huge bullish situation, it is not fact … yet. The breakout is in play, it basically started this week.
Admittedly, the gold market has been confusing us for several months now, and we said that explicitly in Silver Miners Confusing Bulls And Bears. At times gold was bullish: Gold Price Attempting To Breakout And Set Bullish Trend For 2017. Since the first week of May we expected a final decision on a new trend. That did not happen, and the gold market had 2 false breakdowns in June and July, see Gold Price Breaks Down and Silver Miners Break Down, Look Very Bearish For 2017.
So far the yo-yo in the gold market.
Right now, the gold chart suggests that a major breakout attempt is at play. This really can become the real deal for gold, silver and miners. We have said repeatedly that the gold price is the leading indicator (see first chart) and that silver miners are very accurate as a leading indicator (see second chart) for the precious metals complex as well.
From a fundamental perspective, we understand that the market showed disappointment at the failure of Janet Yellen and Mario Draghi to address monetary policy at Jackson Hole last week. That pushed Treasury yields lower along with the dollar. A rally in the Euro to the highest level in two years also reduces the odds for a more hawkish ECB. That’s also good for gold.
From a chart perspective gold is now entering THE most important area: the breakout zone. Any sustained rise (at least 5 to 7 consecutive days) above the $1350 to $1370 area would be hugely bullish for gold and the precious metals market.
The other leading indicator in the precious metals market is the silver mining index (SIL ETF). That confused bulls and bears as well, as indicated with the purple circles on the chart. Three false breakdowns took place recently, but now it seems that silver miners are set to breakout to the upside.
Given the unclear situation in the precious metals market this year we wait for a confirmation of this breakout. In case SIL ETF clears $36 and stays there for at least 7 consecutive days, we know that the breakout got confirmed.
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