A Midterm Exam for Gold

Type the word midterm into Google and all of the results come up about the midterm elections. Predictions, prognostications and forecasts about the future of the House of Representative and the Senate. But for me midterms have a different connotation. I am teaching 4 classes at Case Western Reserve University this fall so for me midterms are about examinations for the students. And they have a lot of them. I have one student that is in 3 of my classes, poor kid. He has 3 exams between Monday and Tuesday. Who knows how many others he has.

But it is not just exam time at our Nation’s Universities. It is also exam time in the markets. With the pull back in the equity markets and rise in Gold last week many are changing their views from bullish to bearish. I am not so easily swayed. Maybe I am just stubborn. I also was not swayed to shift my view in February. Strong and growing earnings and earnings estimates, GDP at about 4%, unemployment at record lows and inflation still not picking up all factor into my perspective. I know, none of that is price action.

So with that backdrop, when I look at charts I see tests of the bullish thesis. One of them is happening in the Gold chart above. after a pullback from an April high, Gold bottomed in August. a small bounce from there over the next 2 weeks resulted in a long consolidation. After two months marking time Gold moved higher last week. After a one day rise it has held up and consolidated again. This is happening at the July short term consolidation. It is also shy of retracing even 38.2% of the down move. Not a trend reversal at this point.

But getting close. The current test of resistance could put the brakes on the move higher in Gold. Momentum is starting to get into bullish ranges through. The RSI is peeking over 60 and the MACD has turned positive as it moves up. Continuation in price, through resistance, could lead to a move over that 38.2% retracement. I would get a lot more excited about a continued move higher and reversal at that point. That would pass the midterm exam.

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