Gold – Flag Points to Bullish Continuation

The long-term decline in Gold has been blamed on a number of factors; stronger dollar, prospect of Federal Reserve hiking interest rates and low inflation to name a few.

Over the last couple of weeks, the weakness in the dollar on the back of expectations that the Fed may be forced to delay the first rate hike has aided the rally in Gold.

Reuters Dollar Index

*US Dollar Index. Source – Thomson Reuters Eikon

This has been followed by consolidation over the last few weeks, which has led to the formation of a flag, typically a trend continuation pattern.

Gold Daily

Early signs suggest this could be the case on this occasion with today’s test of the trend line support and prior resistance failing at the first attempt. The rebound off this level was very strong and could potentially be followed by a test of the trend line resistance.

Based on the size of the flag pole, a break could prompt a move towards the descending trend line which dates back to 22 January. Of course, this is dependent on a break occurring and the point of the breakout and is only a projection based on what can often occur with similar setups.

There are also a number of potential resistance levels above the flag, including last week’s high of $1,126.94, 7 November support at $1,131.50 and 17 March support at $1,142.73.

Gold 4hr

Alternatively, a break below the trend line support, which would also mean a break of previous resistance levels, would be a very bearish signal, with further support possibly being found around $1,100-$1,101.90 and $1,093.90.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.