The One Gold Chart You Need to See

Sean Brodrick By Sean Brodrick,

Metals

Gold’s recent close at more than $1,220 set off all sorts of bullish signals. But there’s one chart that many investors don’t know about. I’m talking about the huge gaps in volume that lurk overhead.

These volume gaps could trigger explosive moves higher.

Let me show you a six-month chart of gold and you’ll see what I mean.

On this chart, the dark line is gold’s price action. You can see it recently pushed above overhead resistance.

The horizontal bars are “volume by price.” In other words, this shows the amount of volume at each $20 increment during this six-month period. The blue side of the bar is bullish volume; the yellow side of the bar is bearish volume.

You can see two huge gaps in the volume-price action. The first one leads up to $1,250. The other one peaks around $1,310.

These are areas where price moved so quickly that there was little to no volume. These form what you might call “air pockets” in price action.

You see, price has what traders call “memory” because of trades done at different prices. If there isn’t any volume at a particular price, there isn’t anyone who got stuck holding shares there. So when a stock gets back to that price again, there’s nothing to stop it in either direction.

On the way down, these air pockets can lead to big drops. On the way up, the air pockets can lead to explosive rallies.

And this chart tells me that as long as gold remains bullish, we should see a move to $1,250 that could rattle the bears. The price of gold could take some time to get through that $1,250 level. But the air pocket leading up to $1,310 will also be beckoning.

Fast ‘n’ Furious Forces

This is a six-month chart. I think gold’s chances of hitting $1,310 in the next six months are very good indeed.

And I don’t think gold will rally just for technical reasons. Gold has awesome fundamentals as well. As I told my Gold & Resource Profit Hunter subscribers last week, those forces include…

  1. Fed foot-dragging when it comes to interest rates…
  2. A peak in the U.S. dollar…
  3. Higher global geopolitical risks remain to be priced in. Will there be a trade war? Who knows! Better get some insurance, eh?
  4. Institutions and big funds rushed out of gold and silver after the election. They’ll have to come back in.
  5. We are at both “peak gold” and “peak silver.” That will squeeze supply.

These five fast ‘n’ furious forces add to all the longer-term fundamentals driving gold. I’m talking about a growing middle class in Asia with a cultural attachment to gold… central bank gold buying… the downward spiral of paper currencies… and more.

Readers should be prepared for the next big bull run in gold and silver… AND plan on buying more on pullbacks.

Consider buying a solid ETF that holds gold miners. The better miners outperform the metal. That’s because they mine gold for less than the market price. So as the price of gold goes higher, their profit margins widen like the Grand Canyon.

Sprott Gold Miners (NYSE: SGDM) is one of the better gold miner ETFs. Unlike other funds that choose holdings by market cap, Sprott uses a methodology designed to boost performance. It targets stocks with strong revenue growth and strong balance sheets.

Whatever you do, do it soon. Gold may zig and zag, but the big trend is higher.

Good investing,

Sean

P.S. This Friday, February 10, I’ll be speaking at The MoneyShow Orlando. It’s free to attend. If you want more information, CLICK HERE. I always like meeting and talking to subscribers. And I’ll have hot picks in gold, silver and more, too!