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.
*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.
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.
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.
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