June Gold’s ‘Zig-Zag’ Pattern Indicates Impending Volatility

Comex gold futures are edging higher on Monday, helped by a dip in U.S. Treasury yields. Gains, however, are being capped by a stronger U.S. Dollar. Gold was under pressure earlier in the session amid rising Treasury yields, but recovered enough to turn higher when yields fell from their highs.

At 12:00 GMT, June Comex gold futures are trading $1933.10, up $9.40 or +0.49%. On Friday, the SPDR Gold Shares ETF (GLD) settled at $179.44, down $1.21 or -0.67%.

The dollar made a firm start to the week as Treasury yields rose with expectations of rapid-fire U.S. interest rate hikes, while talk of Europe banning Russian natural gas kept a lid on the Euro. So essentially, gold is receiving mixed signals, which is leading to the tentative trade.

On one hand, the gold bulls want to continue to drive the “safe-haven” narrative, while the bears are watching the traditional fundamentals and catalysts. Additionally, while expectations of bigger interest rate hikes by the U.S. Federal Reserve are expected to combat soaring inflation, thereby pressuring gold, Citi Research sees the possibility of ‘slower growth risk’, which could be supportive for gold prices.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $1955.00 will change the main trend to up. A move through $1893.20 will signal a resumption of the downtrend.

The market is currently trapped between a pair of retracement zones at $1908.10 to $1958.70 and $1932.90 to $1897.70. This is helping to produce a ‘zig-zag’ trade.

The short-term range is $2082.00 to $1893.20. If the trend changes to up then its retracement zone at $1987.60 to $2009.90 will become the next target zone.

Daily Swing Chart Technical Forecast

The direction of the June Comex gold futures contract on Monday is likely to be determined by trader reaction to $1932.90.

Bullish Scenario

A sustained move over $1932.90 will indicate the presence of buyers. This could trigger a surge into the main top at $1955.00. Taking out this level will change the main trend to up.

Momentum could start to build over $1955.00. This could lead to a breakout over $1958.70 with the next main top at $1972.50 the next target. This is the last potential resistance before the $1987.60 to $2009.90 retracement zone.

Bearish Scenario

A sustained move under $1932.90 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into $1908.10 – $1897.70. This is the last support before the $1893.20 main bottom. Taking out this level could trigger the start of an acceleration to the downside.

Side Notes

The ‘zig-zag’ pattern inside a pair of retracement zones indicates investor indecision. It is also the sign of impending volatility. Given the time spent inside this pattern, start watching for signs of a major breakout.

The chart pattern indicates the way of least resistance is down with $1893.20 the potential trigger point. On the upside, the buying could get stronger over $1955.00, $1972.50 or $2009.90.