Gold is flying its pennant again

In today’s Issue:

Going nowhere at a decreasing pace
Pennants precede major moves
Expect a gold breakout in mid-December

The gold market is busy forming a pennant, again. This is a technical analysis trading pattern you can observe on gold’s price chart. It is a narrowing trading range – the shape of a pennant flag.

The peak of the pennant was formed in October, when the gold price got ahead of itself. The correction that month also gave us the bottom of the pennant. Since then, the gold price has been trading sideways in a tightening series of tops and bottoms.

These pennants aren’t rare in gold. We had one between April and September this year, for example.

Sure, the gold price is up an astonishing 54% for the year. But between April and September, it went nowhere at an ever-decreasing pace.

Another pennant formed between November 2024 and January 2025…

And December 2023 to March 2024…

In fact, you can go back through gold’s price history and find countless such pennants. On just about any timescale, you choose to use.

This makes logical sense. Buyers and sellers battle it out over the “correct” price of gold, gradually approaching the equilibrium. Until some crackpot politician or central banker comes along and causes a rerating. Usually higher.

Then we rocket to the new price. Before buyers and sellers begin their tug of war over a few dollars and cents all over again.

Pennants precede major market moves

What makes pennants interesting for investors is that they don’t last. The price range eventually narrows to a point. A breakout must, therefore, be in the cards before a given date. A date we can identify by drawing a line along the pennant’s peaks and troughs.

The pennant that the gold price is forming today looks set to narrow to its point by mid-December. We can expect a new gold trend to begin before then.

Which direction?

Well, the last few pennants have all been followed by soaring gold prices.

The gold price went from $3400 to $4370 in September and October.

Between January and April, it surged from $2700 to almost $3500.

It makes logical sense for gold to rise over time. It is an inanimate object that gets more difficult to mine and find, while the value of money steadily falls as it is created ad infinitum. The rising gold price is really a measure of the value of money falling.

The real question is whether gold outpaces other investment assets.

You’d think an inanimate object would fall behind productive and yield paying assets.

But over the past 2-3 years, investors who bought gold during the pointy end of pennants certainly outperformed other assets comfortably. That’s because central bankers have been fiddling the money supply, which undermines the productive economy but makes gold shine.

Does this mean we’re in for another gold surge?

Not necessarily. Keep in mind that technical analysis is about probabilities, not certainties. Some pennants can precede meaningful downturns, even in gold.

And a new catalyst for the gold price could come along at any time. The Labour government could announce another fire sale, for example…

But the new pennant does mean that gold investors will likely have to be patient for a few weeks before the next leg in the gold price.

During this time, the ups and downs of the gold market within the pennant are not worth focusing on. They are too likely to reverse a week later.

It also suggests that gold buyers should wait for the bottom of the pennant to buy. We had one earlier this week. But there will likely be another.

What we do need to consider is the bigger picture. What suggests gold will break out of the pennant to the upside or downside?

There are plenty of reasons to be optimistic…

Trump is set to appoint a new leader to the Federal Reserve in May next year. He will choose a yes-man interest-rate-cutting money-printer. This will be exceptional news for gold and silver. And that should be priced into the precious metals in coming months.

It’s a bit like Trump’s appointments to the Supreme Court, which allowed him to stack that deck. A momentously influential move given the constant lawfare from Democrats since.

Also in gold’s favour is the uptick in inflation and the sovereign bond market trouble in Europe and Japan. If central banks can’t raise interest rates without sending their local government bust, they won’t be able to rein in inflation.

If the war in Ukraine is resolved without returning Russia’s assets, this will further incentivise everyone else divesting from US dollar assets for fear of facing the same fate. Gold is the obvious go-to asset to buy.

The list goes on. And it’s getting longer. But every bull market has its corrections.

Once one of these catalysts occurs, gold will set sail once more.

A better way to profit from gold

Whilst the pennant implies a major price move for gold later this year, it does not tell us the direction. So, what if there’s a better opportunity in what the higher gold price has created so far?

Deposits abandoned years ago at substantially lower gold prices are now economic…

And digging deeper at higher cost is now viable…

We are on the cusp of a boom for mining companies’ business operations. An investment surge that will be reflected in their share prices given time.

But the companies that profit most from higher gold prices are the ones that profit from the level of investment activity in the gold sector. Mining companies’ spending.

And this one stands head and shoulders above all others.

Until next time,

Nick Hubble
Editor at Large