As September approached, gold exhibited one of the most appealing technical formations. From April to August, the price moved sideways, establishing a series of higher lows that resembled a classic continuation pattern. This setup had previously led to successful breakouts for the GLD ETF on three occasions, as illustrated in the accompanying chart. While breakouts rarely unfold as perfectly as anticipated, this time GLD delivered a near-textbook breakout and follow-through over the past four weeks.
The weekly Relative Strength Index (RSI) surged near 80, indicating an obviously stretched condition regardless of the timeframe. This spike underscores the strength of the ongoing trend and the eagerness of momentum traders to not only buy the breakout but also support it with follow-through buying—clear evidence of conviction. Historically, since the beginning of 2024, each strong follow-through move has pushed the weekly RSI to around 80. Although some extensions lasted longer than others, these stretched conditions typically required a period of digestion.
Currently, the breakout has already exceeded the measured move target near 340. With the RSI once again stretched, technical indicators suggest that GLD may be approaching another digestion phase. Looking back at the monthly chart since 2014, we can observe how this robust decade-long recovery has unfolded. Since 2016, GLD has cycled through extended consolidation periods followed by breakouts, consistently hitting targets and repeating the process. From this perspective, last year’s activity can be interpreted as a series of trading boxes, with each of the last three ultimately resolving to the upside.
Even if GLD requires a breather now, the blueprint remains: consolidate, then potentially set up for the next upward leg. Of course, at some point, one of these ranges could transform into a reversal pattern rather than a continuation. However, given GLD’s sustained strength, the focus should remain on monitoring digestion phases and preparing to buy the next breakout when it occurs.
The last two months have yielded a remarkable 17.3% gain for GLD, marking the best two-month performance since at least 2014. Historically, significant two-month surges have also necessitated pauses, with gold/GLD consolidating before the trend resumes. This raises an important question: if capital begins to exit GLD, where might it rotate next?
One area that has recently underperformed is Bitcoin. After a period of weakness, BTC has started to bounce back in the past few days, potentially setting up for another bullish short-term pattern. When comparing Bitcoin to GLD since mid-2023, the BTC/GLD ratio line has been trending higher, albeit with several pullbacks indicating that Bitcoin has underperformed gold for extended periods. The chart highlights instances where the RSI of the relative line approached oversold levels, suggesting that it may be time for capital to rotate back into Bitcoin, especially as gold appears stretched in the near term.
Examining the year-to-date performance of GLD versus Bitcoin reveals that the two assets have aligned at various points this year, notably in January and again from July through August. This suggests that gold’s current outperformance may be due for a pullback. A similar setup occurred in April when Bitcoin began to rise just days before GLD peaked, leading to a prolonged period of sideways action for gold and allowing Bitcoin to catch up in performance.
Since mid-August, Bitcoin has been making lower highs and lower lows, while GLD has surged on its breakout, creating a significant performance gap—GLD is now up over 20% compared to Bitcoin on a year-to-date basis. However, if Bitcoin’s recent bounce signals the start of a larger upward move, we could see it catch up to gold, or conversely, gold may relinquish some of its relative gains to narrow the performance gap.
An essential factor in this dynamic is Bitcoin’s strong seasonality. Historically, BTC has shown a consistent tendency to rally in October and November, a pattern that can often become self-fulfilling—especially following a typically lackluster September. With this backdrop, capital may already be rotating back into Bitcoin as we approach Q4. Both October and November’s seasonality will be critical dynamics to monitor in the coming weeks.
