Bull Pennant Prepares the Next Move

Concurrently, gold has formed a bull pennant trend continuation pattern, and it is moving closer to a breakout given the narrowing distance to the apex of the pennant triangle. However, the next bull signal will be on rally above the three-week high from this week at $3,377, and a four-week breakout will trigger above $3,396.

Since the bull pennant is a trend continuation pattern it shows the potential for an upside breakout of the pattern and eventual continuation of the long-term bull trend. Resistance of the pattern is reflected by the top declining trendline and the most recent swing high at $3,451 (B).

Bullish Weekly Higher Highs and Lows

The bullish weekly pattern shows underlying strength in gold, which is supported by the daily bull pennant trend pattern. As expected, volatility contracted during the formation of the pennant consolidation, and more so the past couple of weeks. The only concern is that the bull pennant is almost too perfect and therefore obvious. Sometimes when the chart pattern is very clear it has the risk of doing something to fool market participants before the real move is established. A failure of the bull pattern is likely if gold falls below a recent interim higher swing low at $3,283.

Demand Builds as Consolidation Unfolds

Nevertheless, periods of low volatility can be followed by times of high volatility, or trending. If a breakout above the $3,451 swing high is sustained, the record high in gold will likely be exceeded. Gold would then be heading towards the completion of an ABCD pattern at 3,579, followed by a Fibonacci extension target at $3,603. The higher target would then be $3,668, which is the 127.2% projected ABCD target, combined with an initial target for a larger rising ABCD pattern (not shown) that starts from the April swing low.

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