Citi: "Gold Is Putting In A Base"

Tyler Durden's picture

With silver's best week in over six months and gold testing3-month highs, Citi's FX Technicals group believes gold continues to look constructive overall with a test of $1,361 and eventually $1,433 expected. Rather ominously, from a broad perspective, they would not be surprised to see an inverse correlation between gold and equities just as was exhibited throughout the last bullion bull market in the 1970's.

 

Via Citi FX Technicals,

Gold is putting in a base

Gold continues to look constructive overall and a test of $1,361 and eventually $1,433 is expected

A rally through there would be a major bullish break.

As seen throughout the last major bull market in gold, there appears to be an inverse relationship between Gold and Equities at this stage of the cycle

While we have not yet seen significant bearish breaks on Equities, just as we have not seen bullish ones on gold, the price action on both are beginning to point towards exactly that.

Gold Monthly Chart

Having held the 2013 low as support again at the start of this year, the short term bounce up has led the monthly momentum to also cross back up from stretched levels not seen since the major trend low in 2000

Gold Weekly Chart

The bullish outside week on Gold posted two weeks ago is still valid as we trade above the low from that week which was $1,231

A rally towards $1,361 is expected and overall a double bottom pattern with a neckline at $1,433 is in the making

From a broad perspective, we would not be surprised to see an inverse correlation between gold and Equities just like we saw throughout the last bull market in the 1970’s...

Gold and Dow Jones in the 1970’s

Dow Jones Industrial average and Gold Weekly chart overlay

Is something similar happening again this time?

The key level to watch on the Dow on a weekly close basis is the 55 week moving average at 15,218. It should also be watched in conjunction with the 55 week moving average on the S&P 500 at 1,672 (see Equities section for more details)

The key medium term level on Gold is the double bottom neckline at $1,433. The pattern would target $1,686.