Navigating Gold’s Breakout: Signs of Strength and Short-Term Hurdles

Gold Forecast Video for 31.01.24 by Bruce Powers

Gold breaks out of small pennant consolidation pattern but struggles to maintain progress. Pennants take the form of a small symmetrical triangle. They represent a narrowing consolidation price range as volatility diminishes. That sets the stage for a potential explosive move upon a breakout.

We saw that today in gold, but it has struggled to maintain strength, having fallen back to the breakout area to test it as support. Ideally, a strong bullish breakout closes near the highs of the day’s range. Gold is on track to close in the lower third of the day’s range. Certainly, not as strong a breakout as it could be.

Rally Need Further Confirmation of Strength

Nevertheless, what happens next should provide clues. A drop below today’s low of 2,029 would be bearish in the short term as the price would be falling back into the consolidation pennant. Otherwise, it continues to act as support as gold prepares to go higher. It is set to close at its highest price in 11 days and it has recovered both its 20- and 50-Day MAs, as well as the downtrend line. The integrity of the uptrend remains, with a series of higher swing highs and higher swing lows. Today provides the first clear sign of a bullish reversal. Strength will next be confirmed on a daily close above that top of the pennant at

Low Volatility is Usually Followed by High Volatility

It is interesting to note that the 20-Day and 50-Day lines almost converged today. A bearish signal from the 20-Day crossing below the 50-Day MA was averted. It is another way to notice lower volatility and the reversion towards the mean for price. It is not an accident that they are the closest to each other that they have been since the 20-Day line crossed above the 50-Day in late-October last year. Once they come together as they have, they will begin to move apart again as gold rallies.

Bullish Weekly Signal Triggers

Not only did today’s advance trigger a pennant breakout, but it also triggered a bullish reversal on the weekly chart on a move above last week’s high of 2,038. The longer time frame impacts price behavior of the shorter time frames. Therefore, it should turn out to be a significant development for the bull trend in gold.

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