With increasing geopolitical tensions it is no surprise that Gold has spiked upwards and Frank Cappelleri, Chief Market Technician at Instinet, thinks conditions will remain bullish in the long-term.
Cappelleri points out that Gold has continued to extend upwards after breaking out from a five month trading channel, similar to the price action of late May / early June last year (see Chart 1).
In Chart 2, Cappelleri plots the GLD ETF and SPX together (upper pane) and the GLD/SPX relative line (lower pane). Once again, he shows that similar price action has occurred over the last 18 months – especially on a relative basis – and this suggests we may be at the beginning of an extended period of Gold outperformance.
Shorter-term, the current spike in Gold has triggered an overbought RSI reading for the first time since late August (Chart 3), which back then happened right before it topped out (red line). But Cappelleri stresses that since early 2019 Gold has witnessed multiple months of strong momentum (blue lines) before it needed to take a breather.
Most importantly, he thinks that the bullish breakout remains in play longer-term (Chart 4).