A couple of weeks ago I pointed out that the Accumulation Distribution Line (ADL) for silver was showing significant upward pressure on the price of silver. Below you can see that we have the same situation in gold.
What’s interesting about the ADL is that it is a purely calculated value. It has no subjective component or anything related to market fundamentals. Yet even though the price of gold has been going sideways for almost a year now, the ADL has been steadily rising. The calculated ADL is reflecting the underlying long term bull market that is consistent with the fundamentals.
If you think of the ADL as representing the true market value of gold, then it is easy to see that when the price got ahead of the ADL, it either came down to meet it, or waited until the ADL rose to match it. When the ADL indicated that gold was oversold at the beginning of 2012, it was followed by a sharp rally ($200 in one month).
But, what is most intriguing about the chart is that the ADL is indicating that gold is extremely undervalued at this point. And with the market starting to show some signs of life, it could possibly be the start of a significant rally this fall. Maybe even one that takes us to the threshold of $2,000.