Gold to $3,000? That's what this chart pattern is saying

Strong move coming? A look at some of gold's technicals

If you are looking to buy gold in these uncertain times, let me recommend the Pure Gold Company, with whom I have an affiliation deal.

Today we look at gold’s technicals.

What is gold is doing? Where is it going next?

“This is one of the most bullish charts I have seen in 48 years of trading”, veteran speculator Peter Brandt recently said, describing the set up in gold. 

Bitcoin’s going up. Why not gold?

How long must we wait for the “inevitable move”?

The charts are looking promising …

Gold vs the oldest currency in the world

I’m going to start with a chart of gold in sterling. Many of you are based in the UK, and will have bought your gold with sterling. If you ever decide to sell, it is sterling you will receive in exchange.

Sterling may be the oldest currency in the world still in use. General wisdom has it that it dates back to Offa, who was king of Mercia in the 8th century, though really pounds and pennies owe their provenance to the Romans, their librae and their denarii. But, old or not, the pound has been shockingly mismanaged during my time messing with the mortal coil, and especially so over the last 25 years. 

Just this decade the pound has lost a third of its purchasing power: 32.3% is the compounded inflation rate since January 2020, according to Truflation. If people really understood the extent to which incompetent management is stealing from the players, we might even get the revolution we so desperately need.

Gold is the constant. It has been around since before the planets were formed, and it hasn’t changed. In 1999, when Gordon Brown sold ours, the price was £150/oz. Today it’s £1,585. Measured in the constant that is gold, that’s a loss of purchasing power of over 90% just this century. I just think it’s scandalous. In a nation whose people have been so badly betrayed by its leadership, this must be one of the greatest betrayals of all. It weakened everyone.

So here is gold in sterling over the last decade, and you can see what a good hedge against government gold has been. 

Last month the price briefly broke out to new highs before pulling back. This is a secular bull market, a long term uptrend. There is no reason for it to end any time soon.

You might argue that it has just made a double top that is going to slow things down in the intermediate term. That’s possible. But such is my distrust of those managing the currency, I am not worried. I have a lot more faith in gold. It’s considerably more reliable than those that run the Bank of England and the Conservative Party.

My “lecture with funny bits” about the amazing metal that is gold is coming back to the Museum of Comedy in London next February 14th and 15th. It’s a fun show. Please come. You can get tickets here.

Gold vs the greenback - bullish cup and handle?

Turning now to gold in US dollars, which is how everyone thinks about gold. 

Here it is over the last twenty years.

You can see the massive run up over the noughties, the bear market of 2011-2016, another good run up from 2018 into 2020, followed by the sideways, range-trading action of the last three years. There is also something of a triple top just below $2,100 which we will come to in a moment.

The reason I am showing you this long-term chart is that it has traced out a massive, multi-year cup-and-handle pattern, which I have superimposed here.

The cup-and-handle is a bullish chart formation, particularly in an uptrend as is the case here. 

To establish a target, you would take the distance between the bottom of the cup ($1,050) and the pattern’s breakout level ($2,090) and extend that distance up from the breakout. The distance is $1,040, so we can project a target of $3,130. Nice. 

Cup-and-handles are seen as a reliable pattern. One trader argues that it is 95% reliable. I wouldn’t rely on it 100% myself, just see it as one indicator in a much bigger arsenal.

I also note that this cup and handle has been about for some time. I was talking about it in July 2020. If it goes on much longer the handle is going to be bigger than the cup. But the pattern is still intact. 

Why Peter Brandt likes gold

Brandt’s reason to like the gold chart is that it is “forming an engulfing sweeping reversal month”. Here’s the chart he presented on Xitter to illustrate his argument.

I’ve never been a great one for engulfing patterns, I have to say. I’ve never quite understood them. But I am a great one for Peter Brandt, and he is a much better trader than I will ever be. 

Of some concern, however, is the triple top that gold has put in at around $2,080, visible in the chart above. That is not a good omen.

Brandt, by the way, also sees gold above $3,000, though he feels we may likely see a wash-out move to $1,700 first. That would give the chart “symmetry”, he says, and “properly prepare Gold for a run to $3,000 and higher”.

So to the recent price action. It has been quite something.