Trend Breakout and Bull Pennant
Gold triggered an upside breakout to a new trend high of $5,258 on Friday and appears set to confirm with a closing above the prior high of $5,250. The advance also triggered a breakout of a small bull pennant pattern that had formed over four days this week. This puts gold on track to head to the next upside target of $5,345.
Advance Structure and Key Resistance
During the bounce from the February 2 low at $4,402, gold has established three legs up with a series of higher swing lows defining the structure of the advance. The next upside target is a key price zone for potential resistance as it combines a 78.6% Fibonacci retracement of the large bearish correction and an initial 100% projected target for a rising ABCD pattern. Given the magnitude of the bearish correction following a sharp advance that preceded a three-day decline of 21.4%, downward pressure is anticipated to increase once gold reaches the target area.
Dynamic Support Levels
Key dynamic support for the near-term advance is at the 50-day average at $4,794, providing a lower anticipated boundary for price action. However, this week’s higher weekly low of $5,091 is key near-term support. If price stays above that level the advance may continue towards the record high of $5,598. There is also dynamic support near the 20-day average at $5,016. It was reclaimed with a decisive upside breakout last Friday and due eventually for a pullback to test the 20-day line as support. A higher swing low at $4,842 also provides intermediate support.
Momentum and Volatility Considerations
Although momentum has been relatively slow during the current advance, there are still patterns that provide useful information. Follow-through may be less decisive compared with other volatility scenarios.
Trading Range and Risk
Trading during February was contained within January’s price range, establishing the first inside month for gold since July. Gold could continue to trade within the $4,310-$5,263 since it is such a wide range. Therefore, gold remains at risk of hitting downward pressure that keeps it ranging within January’s parameters.
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