The Gold Price Rally Faces A Key Test. Why A Passing Grade Could Lead To A Long-Term Move.

Traders in tumult are turning to gold, with the current gold price of roughly $1,990 the result of a strong run-up in recent days – but is the upside here to stay or a fool’s gold rally?

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“Gold should not be moving up for a lot of reasons,” George Tkaczuk, portfolio manager at RCM Wealth Advisors, told Investor’s Business Daily’s “IBD Live” show. “Commodities 101 says all commodities are priced in dollars, so if we have a strong dollar, these things should be going down. They’re not.”

While a stubbornly strong dollar would typically keep a lid on gold prices, a clear reason for the surge of interest in the precious metal stands out: unrest in the Middle East. War breaking out between Israel and Hamas earlier this month provided a notable upside catalyst for the gold price rally. Gold is seen as a so-called “safe haven” asset during times of uncertainty.

We’re also seeing weakness in banks and bearish earnings reports. This comes as the Fed recently reiterated the need for higher-for-longer rates, hinting more tightening could still come.

Global Strife Spurs Gold Price Rally

One way for traders to mirror the gold price move is with the SPDR Gold Shares (GLD) exchange traded fund, which acts as a proxy for the price of gold bullion.

The GLD ETF on Friday flirted with a breakout from a double-bottom pattern, closing at 183.59. The ETF saw the first leg, or bottom, for this pattern at 175.79 in June and the second at 168.30 in early October.

Trading volumes have been elevated over the last two weeks, with shares of the ETF popping some 8% over that timeframe as the recent gold price rally kicked off.

For Tkaczuk, he says there’s enough strife in the world for this gold price move to continue to play out. He points to selling accompanied by a rise in trading volume for the ETF during the last days of September and early into October. “It’s kind of like capitulation, meaning the sellers just maybe exhausted themselves,” said Tkaczuk. “Maybe everybody has their eye off of gold.”

With gold rallying strongly off lows in recent weeks, traders should approach the current breakout zone with some caution. Typically when a security rallies strongly over a short period, it could be due for a rest or pullback. But sometimes, momentum takes the driver’s seat.

Taking a step back to the monthly chart, gold is on the verge of what could be a long-term bullish move. Technical traders can spot a multiyear cup-with-handle pattern on the chart that goes back to 2011.

If the saying among breakout traders holds true – “the longer the base, the higher the space” – a breakout to all-time highs for this gold ETF could be worth watching. But the gold price rally needs to first prove it can clear prior resistance around the 185 to 190 range. Attempts in 2020, 2022 and May of this year all failed.

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