Gold Prices Form Bullish Continuation Pattern After Breakout

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Gold Prices Form Bullish Continuation Pattern After Breakout

Gold Prices Form Bullish Continuation Pattern After Breakout

Gold prices had been trending lower over the past few years but it recently made a strong upside break off the descending trend line. Price staged a strong rally from the $1050/ounce levels earlier in the year to the $1250/ounce levels last month, with the latest bullish flag pattern suggesting further gains.

Gold prices typically climb in times of market uncertainty as traders seek a safe-haven holding. It is also considered a hedge against inflation and the US dollar.

Analysts remarked that with this recent price behavior, gold prices could be in for a climb to the $1350-1400/ounce levels sooner or later. The latest rally prior to the flag consolidation spanned $200 so the upside breakout might last by the same amount.

However, RSI is showing a bearish divergence from the previous highs, signaling that bearish pressure might be in the wings. Stochastic is also on the move down so profit-taking might weigh on price action for a while.

Still, price could draw support from the broken trend line around $1120-1160/ounce in a correction before resuming its climb. Data from China has shown more weakness in the manufacturing and non-manufacturing industries, possibly spurring another wave of losses for the stock market and more speculations of a global growth slowdown.

This could draw more investors to precious metals such as gold, which typically enjoy strong demand in times of crisis. Later on in the month, the FOMC is set to hold its interest rate decision and keeping rates on hold could likely weigh on dollar demand and lift gold prices in the process.

Additional risks to the global economy such as falling oil prices and the possibility of a Brexit is boosting the safe-haven appeal of gold as well.

 

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.