Gold: Ride the Bucking Bull to $1340 Next?

Today’s “larger-than-expected” QE program from the ECB will no doubt influence markets for years to come, but one of the most obvious immediate impacts has been the strength in gold. The yellow metal tends to attract flows as a store of value in times of central bank profligacy, and the ECB’s latest announcement definitely qualifies.

Last week, we highlighted a clear inverted Head-and-Shoulders pattern on Gold (see “Could This Bullish Technical Pattern Take Gold above $1300?” below for more), concluding that “…the measured move target of the inverted H&S pattern comes in all the way up at $1340, so gold rallies are still favored as we move through the rest of the Q1 as long as the yellow metal can hold above its 200-day MA at $1250.” After the recent rally though, it’s starting to look like the first quarter timeline for gold to reach its target at $1340 may be too conservative.

After today’s rally, gold is pressing against the bearish trend line off the May 2013 high; if prices can break conclusively above this barrier, it would open the door for a potential continuation toward the measured move target and 78.6% Fib retracement near $1340 next. At the same time, the MACD indicator is trending higher above both its signal line and the “0” level, showing bullish momentum, and while the daily RSI is in overbought territory, gold could certainly rally further before pausing.

From our vantage point, the roadmap for gold is relatively clear: a break and close above the bearish trend line at $1300 should pave the way for another leg up into resistance in the $1340 zone, while a reversal off the current resistance level could take the yellow metal back down toward 200-day MA support near $1250. This could be one of those rare times that the market presents a crystal clear setup, and the only part left to traders is to follow the price action, wherever it leads.

gold_chart_daily_22_January_2015

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