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Precious Metals Complex Update: Potential New Pattern Forming

By David TablishCommoditiesAug 24, 2021 12:19AM ET
www.investing.com/analysis/precious-metals-complex-update-potential-new-pattern-forming-200599766
Precious Metals Complex Update: Potential New Pattern Forming
By David Tablish   |  Aug 24, 2021 12:19AM ET
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There is a potential new pattern forming in the PM complex which I first noticed on the short-term daily chart for SPDR® Gold Shares (NYSE:GLD).

Below is the daily chart we looked at late last week, showing the multiple double tops and double bottoms. The price action had been trading just below the double top trendline for about five days or so. Yesterday, GLD gapped above the double top trendline and is now trading just below the top rail of a potential bullish falling wedge, completing the all important 4th reversal point.

We could possibly see a small ping pong move between the double top trendine at the 167.65 area and the top rail of the possible bullish falling wedge.

GLD Daily Chart
GLD Daily Chart

Let's put that potential bullish falling wedge in perspective by looking at a long-term daily chart going back to the March 2020 crash low. Note the black dashed horizontal S&R line at 157 that stretches all the way back to the bottom rail of the blue rectangle consolidation pattern that formed during the first impulse move up.

That rectangle also held support at the March 2021 double bottom low so we know that S&R line is hot. Normally, before an important move is about to begin it is not unusual to see an undercut of an important trendline that takes out all the sell/stops. So far the falling wedge is trading well above the S&R line.

Of course, there is no law that says we have to see an undercut that produces a bear trap but it would be good confirmation if we did. If the bulls are in charge they should be able to take out the top rail of the falling wedge with no problem. If the bears are in charge then they should be able to stop this current right here and now.

GLD Daily Chart
GLD Daily Chart

Next is the original blue bearish rising wedge which I was looking at as a halfway pattern to the downside. It had a price objective down to the black horizontal line at 157.

At a minimum you can expect the decline to reach the first reversal point where the wedge started to form which was accomplished but if the black falling wedge on the daily chart above is going to play out then we shouldn’t see the 157 area hit again. Yesterday’s price action also gapped above the 50 day sma.

GLD Daily Chart
GLD Daily Chart

Now let's look at the other side of the coin using a daily line combo chart that includes the HUI Index, VanEck Vectors Gold Miners ETF (NYSE:GDX), VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ), the ARCA Gold Miners Index (GDM), ETFMG Prime Junior Silver Miners ETF (NYSE:SILJ) and iShares S&P/TSX Global Gold (TSX:XGD) which is still showing the potential H&S tops in play. Note how this daily line chart shows GLD trading just above the double top trendline and the top rail of the falling wedge. Will we see some follow through to the upside tomorrow?

I also mentioned last week that iShares Silver Trust (NYSE:SLV) was the only index so far that reached its H&S price objective at 21.40. The Global X Silver Miners ETF (NYSE:SIL), which closed well below the bottom rail of its trading range last week, could be showing us a bear trap as long as the price action stays above the bottom trendline.

The S&P/TSX Venture Composite at the top also found some support on its bottom trendline yesterday.

Combo Chart Daily
Combo Chart Daily

This next combo chart shows the 2020 trading range with the small blue trading ranges we’ve been following. As you can see, the most recent low—made last Friday—held yesterday. Several of the indexes gapped back into their small blue trading ranges but a few were so far unable to break through.

Daily Combo Chart
Daily Combo Chart

When I first saw that potential bullish falling wedge on GLD I immediately looked at the PM stock indexes to see it that pattern was relative to them. As you can see it is relative even though GLD has had a much bigger rally off of the previous low on this 2 hour chart below which also includes ProShares UltraShort Yen (NYSE:YCS), the Philadelphia Gold/Silver Index (XAU) and Global X Gold Explorers ETF (NYSE:GOEX). In situations like this it is always important to look for some type of reversal pattern to form at the low.

Recall, there was a small consolidation pattern that formed at the June high that didn’t look like much at the time but it reversed that rally which led to Friday’s low. Typically we should be looking for either a double bottom or a H&S bottom if this downtrend is going to be reversed to the upside.

I added a horizontal black dashed line which could show us either a double bottom trendline or a potential H&S neckline if this is the bottom we’ve been looking for since the August 2020 high. There is still a lot of work ahead, like building out some type of reversal pattern. If that plays out then we’ll need to see the top rail of the black trading ranges broken to the upside.

On days like yesterday it may feel like you have missed the exact bottom. That could be true, but as you can see, none of the lows have held since the June highs. GLD is generally the leader and has been the strongest area in the PM complex so it will most likely give us some important clues, especially in how it interacts with the apex of the blue rising wedge if this is the bottom.

YCD 2-Hr Chart
YCD 2-Hr Chart

Precious Metals Complex Update: Potential New Pattern Forming
 

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Precious Metals Complex Update: Potential New Pattern Forming

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Comments (1)
David Smith
David Smith Aug 24, 2021 11:27AM ET
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"NYSE:GLD" David Tablish, you seem familiar with this particular gold fund. I've spent quite a bit of time doing my due diligence into GLD. Would you happen to know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? The GLD managing organizations sure went out of their way to create this glaring audit loophole. What is the purpose of this loophole? Additionally, the GLD organizations promise that this fund is 100% backed by actual physical gold but yet they staunchly deny retail investors the right to any of their listed physical gold I remember there was a highly publicized visit by CNBC's Bob Pisani to GLD's gold vault. This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.
David Smith
David Smith Aug 24, 2021 11:27AM ET
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Even on the subject of GLD's insurance, they are not straightforward about it. Their representatives will not confirm nor deny the existence of GLD's insurance. I recommend anyone curious about this to confirm via calling GLD's publicly listed number for general inquiries at 866 320 4053 and ask about this clause from the GLD prospectus: "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." Exactly how much of the fund is insured? They will not give you a straight answer and might even throw in some bizarre excuse which I've experienced. Why hide this information from investors?
 
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