Time For Consolidation And Lower Volatility

Gold endured a 20% correction over eight months. A 15% rebound followed that in two months. It has retraced some, but not a majority of the losses.

This action is all part of the handle of a super bullish cup and handle pattern.

The handle itself is part of a much larger bullish consolidation, but the market is approaching resistance within the handle.

Below we plot GDXJ, GDX, Gold, and Silver.

As you can see, Gold has been contained by $1900 while Silver has yet to break above resistance at $28.50. It’s possible Gold could push up to resistance at $1920 or even $1950, which would align with the miners testing resistance from Q4 2020. 

(Click on image to enlarge)

GDXJ, GDX, Gold, Silver Daily Bars

During a bull market, sustained corrections in Gold typically end in bullish consolidations. In other words, there is the initial decline, a rebound, and then consolidation.

In the chart below, we plot the average of six historical bull market corrections in Gold along with the average of the three corrections that could be most comparable to today.

Gold has not tracked any individual correction closely but has mirrored both averages, which now argue for a bullish consolidation into year-end. 

(Click on image to enlarge)

Historical Corrections: 1975-1976, 1999-2001, 2004-2005, 2006-2007, 2008, 2016-2018

Consolidation and time can lead to declining and lower volatility, which is a necessary condition that facilitates big, impulsive moves.

We plot Gold below and several different indicators, including the Gold Vix (GVX) and Average True Range (ATR). The vertical lines show points from which Gold made big moves. 

These indicators are declining, and I expect they will bottom out around the end of this year to early 2022. 

(Click on image to enlarge)

Gold Weekly Bar Chart & Volatility Indicators

The second half of the year could be the setup for the next leg higher in precious metals, which I anticipate could be one for the history books. There is time to prepare your portfolio, but some quality juniors have already started to move.

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