Gold’s Big Breakout: Could 5-Month Highs Be Next?

Since topping out at 1345 one month ago, gold hasn’t given bulls anything to cheer about. The yellow metal has put in a series of short-term lower highs and lower lows, culminating in last week’s drop to the 61.8% Fibonacci retracement at $1280. Since then, a bout of risk aversion has taken hold of the market, driving traditional safe havens like the US Dollar, Japanese yen, US Treasuries, and gold to new heights; in fact, with most of those conservative assets hitting their highest levels of the year, some traders are arguing that gold may have some catching up to do.

Gold’s daily chart reflects this shift toward risk aversion. The entire drop from the early July high created a clear falling wedge pattern; despite being created by a series of lower lows and lower highs, this pattern is typically seen as a bullish signal because it shows declining selling pressure on each additional thrust lower. Once we saw the big breakout yesterday, which also created a Bullish Marubozu Candle on the daily chart, the outlook for the commodity shifted strongly to the topside. Today’s move above the July 29 high added the “cherry on top” of the bullish sundae from a price action perspective.

Meanwhile, the RSI broke out of its corresponding falling wedge pattern in tandem with price, and the slightly slower MACD indicator is also turning higher today, signaling a shift to bullish momentum. With both the MACD and RSI confirming the move in gold’s price, traders can have more confidence that the next move will be higher from here.

Moving forward, gold bulls may start to turn their eyes toward the Fibonacci retracements of the July dip at $1320 (61.8%) and $1331 (78.6%), followed by the 5-month high at $1345. The short-term bias will remain to the topside as long as prices remain above the 50-day MA near $1300.

* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.

 

gold_price_daily_chart_7_august_2014

 

You can find more of FOREX.com’s research at http://www.forex.com/latest-forex-research.html

 

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options.

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing