Gold prices have been teasing market participants this last month or so, as it has traded sideways in a flag like consolidation moving ever closer, to the downtrend off the April high. The question is, does it break higher or lower?
A few things stand out to me in the precious metals right now. Silver saw a new low in September which Gold did not confirm, often an event that occurs at significant lows. Silver also shows bullish RSI divergence, a potential inverse head and shoulders pattern, all of which is occurring at the bottom of wide trend channel that began in November '16.
To add to a potential bullish scenario in the metals, commercial hedger positioning (i.e. the smart money) is at historical extremes. Should a rally occur, those on the other side of this trade will find themselves scrambling to cover their short so price could be set for a helluva squeeze.
Lastly, the extreme level of the Gold/Silver ratio which has rarely been seen at such high levels, is suggesting out performance of silver is a strong possibility.
Silver outperforming gold is characteristic of a precious metals bull market. The below chart shows this relationship. The red line is the Gold/Silver ratio which looks to be failing around historic highs (more easily seen on a daily chart). The blue line is the inverted price of Silver. The potential reversal of this ratio from an extreme suggests we are looking at a significant low in the precious metals with a strong rally to follow.
Price action is yet to confirm any of the above but given where Gold is trading, we could see a break in either direction, very soon.