The SPDR Gold Trust (GLD) and the gold futures contract have turned higher at key retracement levels in reaction to spiking volatility and may have bottomed out, despite the Federal Reserve's aggressive rate hike schedule. This buying spike could signal better times for gold bugs and mining companies dependent on pricing for the yellow metal while adding firepower to an expanding commodity sector uptrend that could last well into the next decade.

President's Trump blistering criticism of the Federal Reserve may have contributed to the rally because few folks underestimate his power to politicize the central bank in the coming years. Inflation numbers and wage pressures have shown few signs of accelerating so far in 2018, and this arm-twisting could have a dampening impact on Fed action, underpinning gold buying interest.

Gold has struggled since the June 2016 Brexit referendum, topping out after an impressive bounce that started just above the $1,000 level, and gold prices have ground sideways for the past two years. While this week's upturn improves the technical outlook, it didn't set off a long-term buying signal because price action remains stuck within the trading range posted after the 2016 reversal. A breakout above $1,300 and $118 on the GLD fund will be needed to accomplish that bullish task.

GLD Long-Term Chart (2004 – 2018)

The gold fund was launched in November 2004, opening in the mid-$40s and dropping into a trading range between $41 and $46. It broke range resistance in the second half of 2005 and took off in powerful uptrend that posted two rally legs into 2008, when it topped out at $100.44. The fund and commodity fell more than 30% during the economic collapse, finding support at $68.81 and $681, ahead of a steady uptick that mounted the prior high in 2009.

The multi-year uptrend posted an all-time high at $185.85 in September 2011 and rolled into a trading range that carved the outline of a descending triangle top, with support near $150. It broke down in 2013, entering a steep downtrend that finally bottomed out near $100 in January 2016. A bounce to $131 ended in June, giving way to a 24-point decline that established a trading range still in control two years later.

The monthly stochastics oscillator fell to the deepest oversold reading since 2014 in July 2018. The indicator has now crossed into an unconfirmed buy cycle, with several weeks of sideways to higher prices needed to confirm the signal, which will predict six to nine months of relative strength. Lower highs since 2013 have carved a trendline (red line), with resistance now centered at $128, indicating 10% to 12% upside potential in the coming weeks.

GLD Short-Term Chart (2016 – 2018)

The sell-off into August 2018 found support at the .618 Fibonacci retracement levels of the 2008 to 2011 uptrend (blue lines) and January to June 2016 bounce (red lines). This auspicious alignment bodes well for higher prices in the coming months, perhaps bringing the five-year trendline back into play. A breakout above that resistance level would set off major buying signals, raising the odds that gold will eventually test 2011's all-time high.   

For now, market players should expect mixed action that may include testing down to $113. Look for headwinds to increase above $118, where 200-day exponential moving average (EMA) resistance and the broken December 2017 low may slow or stall progress. Two steps forward, one step back may categorize the prevailing theme in the coming months, with the yellow metal awakening slowly from its multi-year slumber.

The Bottom Line

Gold has rallied off key retracement numbers while relative strength indicators have bounced off extremely oversold levels, raising the odds for higher prices into early 2019.

<Disclosure: The author held no positions in the aforementioned securities or futures contracts at the time of publication. >