You’ve Probably Never Seen This Gold Chart
By Jason McIntosh | Published 19 April 2022
People always ask me will gold stocks go up in 2022. But that’s not the right question to ask. What I believe you should ask is: will gold stocks outperform in 2022.
I’ll answer that in a moment. I’ve also got a fascinating chart for you.
But first, I want to look at some interesting price action in the ASX Gold Index. I also want to test your “chart eye”. Just for fun, see if you can identify a classic chart pattern on the right-hand side of this chart:
Do you see it?
Well done if you think you can. It’s a pattern that suggests that higher levels are coming for the ASX Gold index.
Don’t worry if you aren’t sure.
Let me show you what I’m referring too:
What we have on the Gold Index is a bullish wedge formation. It’s one of my favourite chart patterns. I learnt to identify these in my graduate year in the charting department at Bankers Trust in the early 1990s. This is where I got my training in old-school chart analysis.
Nowadays, I use algorithms to find opportunities in ASX stocks. But I always enjoy looking at a stock chart just to see what patterns I can spot. It’s really interesting, and I still love the challenge.
So, we’ve got a bullish breakout from the wedge. This is significant as it potentially ends the sell-off in gold stocks since the peak in July 2020. You can see how the price action lost downward momentum as the wedge was narrowing. This indicates that selling pressure was drying-up and that a turning point was potentially approaching. The bullish signal came with the breakout in February.
If you’ve been following my weekly video series, Trade the Trend, you’ll know I’ve been discussing the bullish potential in gold stocks for several months.
ASX gold stocks are now starting to really gather some momentum. We saw a buy-the-dip opportunity in early April, as the Index came back towards the 50 and 100-day moving averages. The price has since kick higher again.
It’s encouraging to see the ASX Gold Index starting to build a sequence of higher highs and higher lows. That’s a sign of a market which is developing into a robust trend. And it’s encouraging to see the buy-the-dip traders coming in and supporting the Index (and gold stocks) on pullbacks.
Now, to that chart you’ve probably never seen before…
This is a really interesting chart… it compares the gold index to the rest of the market. To do this, I’ve divided the price data for the ASX Gold Index with the data for the All Ordinaries, this creates a ratio.
The chart is on a weekly basis and goes back to 2001. When the line is rising, gold stocks are outperforming, and when it’s falling, gold stocks are underperforming.
Since 2015, we’ve had the emergence of a new period of gold stock outperformance. It’s still establishing, but I think it’s gained momentum. I think we’re at the point where we’re going to the ratio move higher again, and potentially make a new high. This would mean a period of gold stock outperformance.
Keep in mind that the chart has over 20 years of data, so this is a medium to longer-term play. But it’s just going to be interesting to see whether those gold stocks are moving into a period where they do outperform the broader market.
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I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.