January 1, 2022
A Big Picture Look at Gold

A number of Factor Members have asked if the monthly Gold chart can be interpreted as a possible Cup and Handle pattern dating back to 2011 high. In fact, I completely accept this interpretation.  My only question is whether the Handle might extend longer and to lower levels or if the current shallow and brief Handle will be all the market experiences.  In the case of a shallow Handle we should be alert for a buy signal on weekly and daily charts.

The market has chopped since making a high at 2,063 (nearby futures) on Aug 7, 2020. The high in spot Gold on that date was 2,075. One thing is for sure IMO – a 17-month trading range of 20% (of the underlying value) starting at an all-time high is seldom bearish price behavior.

The current daily and weekly charts seem premature for a massive blast off at this time unless we label the period since the Mar 2021 low as a 5-point reversal symmetrical triangle. This is not an
ideal interpretation because the symmetrical triangle is not the most reliable chart pattern. While  his pattern is not likely to launch the completion of the 10-year Cup and Handle it could propel
prices to retest the 2020 high. That, in itself, would be a really good trade.

Among other traders, I have cast doubt on the possibilities of a $200-plus Gold rally to retest the 2020 high based on the profile of COT data – that Commercials hold an extreme short position while Specs hold an extreme short position. I am revising my thinking on this. Historically – across all commodities – extreme short positions by Commercials is a head-wind against a sustained advance. Yet, the last two “super” bull trends in Gold began with extreme short positioning by Commercials (see vertical red lines).