Technical Trading: Gold Triangle Pattern Targets Gains To $2,100 An Ounce

Mon Oct 1—Comex December gold futures probed higher in early morning New York action Monday, but the rally to a fresh eight-month high was met with profit-taking and selling.  In the short-term, the bulls and the bears have reached a point where they will do battle.

However, a look at the longer-term monthly chart reaffirms the primary secular bull trend in gold and confirms a bullish triangle target at the $2,100 per ounce level in the weeks and months ahead.

Taking a step back to examine recent market action, the market has rallied over $200 an ounce since early August; it’s reached a critical resistance zone at $1,800 and some short-term sideway consolidation and range-trade is likely.

Unlike the stair-step rally pattern since late August, two-sided trade has entered the gold arena for now. And, until the bulls can confidently blast through the $1,800 ceiling, short-term speculators will try their hand at the short-side of the market.

But, a close look at the monthly chart of nearby gold futures, shown below, reveals a confirmed bullish breakout from a triangle-like pattern.

Within technical analysis, triangles are viewed as continuation patterns. What does that mean? Simply put, a triangle represents a pause in the primary trend. Gold rallied for 10 years and then consolidated for a bit over a year in the triangle pattern. Now the gold bulls have woken back up and blasted higher from that triangle.

Triangle patterns offer technical traders an actual target or measured move objective. A projection from this triangle is seen at roughly $2,100 an ounce. Traders can simply take the widest part of the triangle and add that onto the breakout point, or the declining trendline seen off the all-time highs. That calculation roughly projects to $2,100. Some traders calculate their triangle targets differently, but the bottom line is that the gold market has broken out of a bullish continuation pattern that ultimately projects a rally to new all-time highs.

Very short-term patience may be needed, as the bulls have run out of steam. Daily momentum has turned lower from overbought levels, which is a positive thing for the longer-term uptrend. But, it also shows the market has gotten a little tired.

On the downside, strong support lies at $1,750 and then $1,738.30 on the December futures contract. Near term, gold may well be stuck in a range between $1,800 and $1,750/1,738.

But, once the bulls are rested and rearing to go once again, look out on the upside, as that triangle targets gains to the $2,100 level.

By Kira Brecht


International Metals Group

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