Is this the healthy correction gold bulls were waiting for?

The answer is “YES!”

Shares of the U.S. Gold Fund (GLD) just delivered one of the rarest – and most actionable – signals in technical trading: a clean, crowd-supported pullback to the 20-day moving average.

After a massive run that sent GLD shares more than 55% higher over the past year, the ETF just posted a two-day 8.5% drop, a move that’s only happened 11 times in the last 20 years.

That alone is enough to raise eyebrows. But here’s why this dip is different.

A Perfectly Timed Technical Setup
Gold is one of the most widely followed assets in the world, and that matters.

Lesson one of technical analysis is that price patterns and analysis work best when everyone is watching. In other words, a stock or ETF that is thinly traded is less likely to react to technical analysis “signals” or indicators. Think of a tree in the forest that nobody hears fall.

In Gold’s case, the “crowd” has grown to historic levels as investors – professional and retail – look to protect their portfolios and wealth. The fact that gold is now on so many investor’s radar means that the effectiveness of technical analysis and “signals” on gold has been increased.

In other words, you can’t afford to ignore gold’s technical signals.

That said, the recent selloff of the U.S. Gold Fund (GLD) shares landed them exactly on the 20-day moving average, what I call the “Trader’s Trendline.”

This short-term support line is where momentum traders typically wait to re-enter strong uptrends. That bounce confirms short-term buyers are stepping back in, signaling a potential continuation of the trend.

Let’s look at why gold’s trend is set to continue.

Fundamentals Still Support Gold’s Long-Term Bull Case
Gold’s long-term bullish setup is backed by powerful macroeconomic tailwinds that continue to build beneath the surface of the financial system.

At the core is the unsustainable trajectory of U.S. debt.

With debt-to-GDP levels surging and deficit spending accelerating, confidence in the long-term purchasing power of the U.S. dollar is beginning to erode. Gold, as a hard asset with no counterparty risk, stands to benefit as investors seek shelter from a weakening fiat regime.

De-dollarization trends are gaining momentum globally.

Central banks – especially in emerging markets – are diversifying away from the dollar and increasing gold reserves at the fastest pace in decades. This isn’t a symbolic move. It’s a strategic pivot away from a U.S.-centric monetary system, and it puts steady demand under the gold market regardless of speculative flows.

Meanwhile, the Federal Reserve’s pivot toward rate cuts – whether driven by recession, market instability, or political pressure – adds another bullish catalyst.

As real yields decline, the opportunity cost of holding gold disappears, historically fueling strong rallies in the metal.

Finally, the traditional 60/40 portfolio is being rethought.

With bonds failing to hedge equity drawdowns, institutional and retail investors alike are allocating more to real assets – particularly gold – as a durable store of value in an era of volatility and policy failure.

These forces aren’t temporary. They represent the foundation of a multi-year, secular bull market in gold.

Gold’s Technical Analysis Say the Trend Is Still Intact
The technical backdrop for GLD remains firmly bullish along with it’s fundamental outlook as momentum, trend structure, and trader psychology are all aligned in favor of higher prices.

The 8.5% drop reset short-term sentiment and brought shares back to key support, not through it. Until that changes, the correction should be viewed as a buyable pullback, not a breakdown.

Here are the details:

  • 20-Day Moving Average ($370): GLD shares dropped directly to this level and bounced. This is the first test of the short-term trendline during the current rally, and buyers showed up right on cue. That confirms near-term support and sets a reference point for tactical trading.
  • 50-Day Moving Average: The 50-day is rising with conviction, reflecting strong intermediate-term momentum. GLD continues to post higher lows above this trendline, reinforcing bullish control. This suggests the next 4–6 weeks will likely bring higher prices into year-end.
  • Momentum Profile: GLD’s momentum trend remains positive. The ETF never broke below key momentum support on this pullback – instead, it paused. This is consistent with a mid-trend correction rather than a reversal.
  • RSI Overbought Reset: The GLD’s Relative Strength Index (RSI) had been trading well above 70 on the, a clear overbought reading of the indicator. These readings almost always leads to a short-term consolidation or pullback. We just got both. The RSI has now pulled back from overbought, resetting the trend for another leg higher. Overbought conditions during bull runs can persist, but this reset gives room for upside.
  • Round Number Resistance ($400): The recent peak at $400 acted as round-number resistance, triggering profit-taking and options-related selling pressure. Once cleared, this level could flip to support as FOMO-driven buying returns.
  • Technical Support Zones: Immediate support is the 20-day at $370. If broken, next support is at $350. This is a critical round-numbered level and the “back the truck up” zone for long-term buyers. That area would mark a -12.5% pullback from the high, which would attract aggressive accumulation.

Gold’s Long-Term Outlook Remains Bullish
The long-term setup for gold remains strong. Fiscal deficits are growing, central banks continue to accumulate, and inflation-adjusted returns on cash and bonds remain weak. These forces won’t unwind quickly.

Investors should expect to see some technical resistance at $400 due to its round-numbered feature, but the long-term gold bulls should focus their attention on $500 as a long-term price target.

Bottom Line
Gold’s rare -8.5% pullback is the “Healthy Correction” that was needed to refresh the rally and allow investors a chance to buy at a discount to the recent highs. Expect to see gold’s trend to pick up where it left off as its fundamental drivers remain fully intact and its trend remains incredibly friendly to investors.

Investors looking to leverage gold’s continued rally should check out long-dated call options on the underlying U.S. Gold shares (GLD). These options are a value from the perspective of time premium given the GLD’s extremely low historical volatility and strong trend.

As always, investors should understand that options trading involves significant risk and is not suitable for all investors. Investors can lose more than their original investment. Before engaging in options trading, please ensure you fully understand the risks involved, including the potential for total loss. Always consult a licensed financial advisor before making investment decisions.

— Chris Johnson

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Source: Money Morning