Gold Rises Above Key Levels

Friday’s advance further confirms a bullish reversal following a test of support near the lower uptrend line that marks the bottom of a developing bull pennant pattern. This puts gold on track to continue to strengthen towards a test of resistance near the top boundary line of the pennant, at a minimum. A breakout above that line provides an initial breakout signal, but a rise above the lower swing high at $3,451 should be more convincing. If a breakout of the pennant triggers, an initial new high target is around 3,578, derived from a rising ABCD pattern begun from the mid-May swing low. Then there is a 127.2% extended target measured from the April downswing at $3,603.

Within Two Weeks

Since the apex of the pennant triangle is getting closer, an upside breakout should occur within the next couple of weeks, or a pattern failure. A failure of the bull pennant would occur on a drop through the bottom boundary of the pattern rather than the top. The fact that silver broke out today to a new trend high with enthusiasm is supportive of an eventual upside pennant breakout in gold.

Behavior at Support to Provide Clues

Next, the behavior of gold around potential support around the 20-Day or 50-Day lines, should provide clues. If the bullish scenario is retained, support should be seen above today’s low of $3,322, which currently matches the 50-Day line. However, gold remains in a consolidation pattern and therefore choppy price action could continue until there is a decisive breakout.

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