After a brief period of consolidation over the last week, Gold has pushed higher today, breaking through the top of the flag formation – a bullish continuation pattern.
The break above the flag, highlighted yesterday (Gold – Flag points to bullish continuation), could now prompt another rally in the yellow metal.
Initially it will face a test from a key resistance area between $1,126.94 and $1,131.50. The former was the most recent resistance while the latter proved to be a key level of support back on 7 November. Just above here is also the 38.2 fib level – 18 May highs to 20 July lows.
As it stands, price is showing no sign of momentum loss which would suggest any resistance may prove to be temporary.
The 233-period simple moving average on the 4-hour chart may also have offered some resistance at this level, having done so at times in the past. This may still do so, with price having only marginally breached it, but as already highlighted, momentum appears to be with the bulls.
If this level is broken further resistance could be found around $1,142.75, which was a key support on both 1 December and 17 March.
The break of the flag would suggest that any rally could well be stronger than this though. The size of the flag pole would suggest that Gold could rally towards $1,164 (Pole calculated from 7 August lows to 13 August highs then projected from the breakout point).
It is important not to take these projections too literally and it’s always better when they coincide with other key levels. It’s also worth noting that these projections are only based on what can often happen in these circumstances and is not guaranteed to happen every time.
On this occasion it may coincide roughly with the descending trend line from 22 January highs which would make it a logical level of resistance.
It also falls between the 50 and 61.8 fib levels, which would be in keeping with this being a corrective move in the longer term down trend.
Of course, this should always be monitored for any fundamental shifts. For example, this evening we’ll see the release of the FOMC minutes at 7pm BST. A hawkish release with hints of a September rate hike would probably be bearish for Gold and could render this null and void.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.