Gold is forming an increasingly bullish pattern. This suggests that a break above 2016 highs is approaching over the next year, if not imminently.
In technical analysis, the primary pattern we are referring to is called an ascending triangle formation. Please remember that in these technical studies we are simply observing where large buyers and sellers appear in the market. And, what trends exist in their buying and selling behavior.
An ascending triangle is a consolidation pattern in which an evident overhead resistance – or supply of sellers – exists at a known level. Meanwhile, buyers appear at increasingly higher levels over time. This situation suggests that buyers are more eager to enter the market than sellers are to leave. Hence, the bullish bias to the pattern. In technical analysis textbooks, the pattern would appear as follows:
Let us observe how the pattern looks in the gold market. Below we continue to see sellers emerge in the vicinity immediately surrounding the 2016 peak. This peak is of $1,378 per ounce and extends down through $1,355. This horizontal resistance zone has been challenged no less than five times since mid-2016. You can see this on the chart below labeled in red (1 – 5):
Now, where are the large buyers presenting themselves?
In this case, from the late-2015 bottom at $1,045 per ounce, we observe a rising trend of buying support. First, buyers showed up on the steep correction at $1,122 per ounce in December 2016. Then, they continued to buy at higher and higher lows. This is up through the December 2017 trough at $1,236 per ounce. This series of lows form the basis of the rising support line. (blue). We see the line converging with the horizontal resistance zone.
Keys of an Ascending Triangle
The key takeaway of an ascending triangle is a horizontal resistance zone. Also, it has rising support developing over time.
Fundamentally, we may think of the pattern as a “chipping away” of the oversupply of sellers by the buyers. Which is at each incremental short-term peak. Buyers are scooping up gold at higher and higher levels. Sellers remain content to unload within a pre-defined zone.
Why does this pattern suggest a bullish outcome?
This continual transfer of gold from sellers between $1,355 – $1,378 to buyers at incrementally-higher levels suggests something. When the final seller in this zone has exited, buyers will be forced to pay higher prices than they did during the consolidation period. The result is an upward continuation movement.
Note that on the gold chart above it appears that the pattern could continue until the end of 2019. Yet, in practice most triangle formations resolve in a break higher or lower between two-thirds to three-quarters of the way through the pattern. Since the pattern would be approximately four years old from 2015 to 2019, we anticipate a breakout will occur this year, in 2018.
Targets for the Pattern
Initial targets for an ascending triangle may calculate as equal to the amplitude of the prior consolidation, added to the breakout point. Gold’s consolidation from the 2016 peak to the 2015 bottom was $1,378 – $1,045 = $333. Adding $333 onto $1,378 reveals a long-term target of $1,711 per ounce.
Please note that this is one target only. Which, we give a reasonable expectation upon a successful breakout above the 2016 peak. Markets are constantly in a state of flux. We must continuously monitor for new developments and variables.
That said, the technical target for a break above 2016 highs based on the ascending triangle in gold will be $1,711 per ounce. This could reasonably be within 6 – 18 months of the breakout point. Say the break occurs in 2018 as we expect. We will thus be looking for the higher target to manifest by mid-2019 through early-2020.
Takeaway on Gold’s Pattern
Gold is seeing an increasingly constructive consolidation. It features higher lows and horizontal peaks, since late-2015. This pattern suggests an overhang of sellers exist in the $1,355 – $1,378 region. We expect that when this price zone exceeds, a new leg higher will commence for gold. Only a failure of the mounting support would show us that buyers are not as determined as they appeared to be through 2015 – 2017. Assuming support holds, we look for notably higher targets by 2019 – 2020. We will bring updates to you as this pattern continues to develop.
Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. This is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.
This article is third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consider it as financial advice in any way.
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