How gold could be experiencing a false breakout

Gold (GC=F) has been on a tear with five straight days of gains, reaching a price of over $2,100 on Wednesday. Is it possible for gold to continue its rally or is this a case of a false breakout?

Yahoo Finance Reporter Jared Blikre joins the Live show to contextualize the situation, discussing previous false breakouts in gold over the last five years.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

- Gold is on a tear racking up five straight days of gains worth 5%, taking the yellow metal to roughly $2,150. Does the rally have legs or is it just another false breakout that leaves bulls frustrated? For this, we've got our very own Jared Blikre on the gold beat today. Jared.

JARED BLIKRE: Hey, thank you, Akiko. And that is the question because we've had a lot of fake breakouts to the upside in gold. And let me just show you, first of all, here's what's happened over the last few days. In fact, this chart is year-to-date. You can see how price action was consolidating until very recently, and then it's just exploded to the upside.

But if I show you a five-year chart, you can see how we've kind of been here before. And let me put a darker line on here. It's almost a head and shoulders inverse top that we're seeing. So this would be the left shoulder, this would be the head, this would be the right shoulder, and then we've taken off from here. But we've seen several times in the past where we broke to new nominal highs only to get sucked back in, and I think that's what traders might be afraid of this time.

And by the way, here is a 20-year chart, and you can see an even bigger potential cup and handle or cup and flag pattern right there that is evolving. So the point is when you have these really long consolidations, you can have huge breaks to the upside. But when we're measuring this in years, guess what? It could take a little while.

Now, here's another thing I'm watching is gold volatility. Let me bring this back down to a three-year chart. We can see it's a little bit elevated but nowhere near the spikes we've seen before. And what's interesting about gold is that when it trends upward, it trends with volatility. So it actually gets more volatile as it spikes to the upside. That's the opposite of stocks. So gold volatility is actually something that's pretty good for the market.

And finally, here is the VanEck Vectors Gold Miners ETF. So these are the guys who dig it out of the ground. Those were the picks and shovels, and this is just a giant sideways chart. So this isn't even like the gold chart where we're breaking above, there's a lot more work to be done here. But that can be where a lot of the action is. Especially as gold gets going, you're going to see a lot of these miners really get going as well.

But we can see when I punch up the year-to-date numbers just kind of languishing, not a whole lot of winners that we're seeing in this bunch just yet. But you wait, we see higher gold prices, they will catch up.