This week, we'll look at two important ratio charts that will help us see where we are in gold's secular bull market and where we might be headed.
The first is an important long term chart of Gold/DXY. DXY is a ratio chart itself that measures the relative strength of the US Dollar against a basket of major currencies. When gold outperforms DXY, it is in a massive bull market, which is plain to see from the chart as gold crushed DXY in the 1970s and the first decade of the 2000s. I have defined this chart as a large ascending channel that shows some nice confirming price action around the midline. Earlier this year, price briefly broke above the channel before a hard rejection that demonstrated how hot that upper rail remains. Pessimists would note that recent price action looks eerily reminiscent to that of the 1980 top that led to a 20-year hibernation in the yellow metal. However, initial false breakouts often lead to bulllish consolidations on top of important trendlines, and that may well be what we are seeing now.
In any event, if gold is to resume its secular bull market and seek an ultimate blowoff top like I suspect, it will need to recapture this upper rail and leave this channel for good.
The second chart we will look at is that of gold vs copper. I have always found the symmetry on this ascending channel to be impeccable — a beautiful inverted head & shoulders pattern with four shoulders on each side! I have long felt that a secular blowoff top in gold would be accompanied by a channel breakout and IH&S measured move in this chart.
Currently, price sits within its 4th right shoulder and right along six year support. I suspect this chart could be hinting at a near-term reversal higher in gold, but of course timing is often a fool's errand when looking at a near-40-year chart.
The important thing here is that, if gold's secular bull market is to resume, this pattern cannot fail.
It's been a tough few months for gold bugs, but the long term charts and fundamentals remain extremely constructive.
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The information contained in this article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell.
