Price Compresses

It is interesting to note that the 20-Day and 50-Day MAs recently converged and are identifying a similar price area. This reflects the decline in volatility recently that is also expressed by the pennant symmetrical triangle. The convergence of the moving averages may occur before volatility increases in a noticeable way. Notice how in January, a bull breakout of consolidation triggered as the same two moving averages converged then as well. The 50-Day line has done a relatively good job of identifying dynamic trend support since it was reclaimed in January. It’s now $3,338.

Second Bull Breakout on Deck

A second bull breakout attempt of the pennant is indicated on a rally above this week’s high of $3,439, with a clearer trigger above $3,451 (B). But then gold should see a clear pickup in bullish momentum if it is to have a chance to exceed the record high of $3,500. If a move above the record high can be sustained, then gold first heads towards the initial target of a rising ABCD pattern (purple) at $3,578. A little higher is the projected 227.2% target at $3,595 for a long-term rising ABCD pattern that begins from an August 2018 swing low.

Key Support at $3,366

Despite gold being in a strong bull trend, there is always the potential for a breakdown of the pennant and a bearish correction rather than an upside continuation. A drop below support around the interim swing low of $3,366 will show weakness and a potential failure of the pennant. Further weakness would then be indicated on a drop below the higher swing low at $3,247 (C). There is only one more day till the week is over. Be aware that this week’s weekly bullish continuation signal will not confirm on that time frame unless this week ends above last week’s high of $3,377.

For a look at all of today’s economic events, check out our economic calendar.