Short-term strength within the bearish channel
Despite signs of short-term strength, gold’s advance is a counter-trend rally within a larger downtrend channel pattern. Therefore, the potential impact of the canal is assumed to take precedence until proven otherwise. If the integrity of the channel structure is maintained, resistance may develop around the downtrend line, followed by a turndown and lower prices.
The 78.6% retracement level at 2,695 can also be considered as it is relatively close to the trendline. Overall, a bullish reversal of the bearish correction is only evident when there is a rise above the most recent swing high at 2,726, as this is a lower swing high and part of the downward price structure.
Contracting price range
In addition to the channel pattern, the current short-term advance is part of a developing consolidation margin defined by the upper downtrend line and the uptrend line at the downside connecting the December 19 swing low at 2,582. Overall, the consolidation range has narrowed and shows a symmetrical triangular pattern with two lines meeting at the apex of the triangle (brown horizontal) on February 6. Periods of price decline or lower volatility are typically followed by price increases – trend and increased volatility.
Volatility is likely to peak before February 6
Price action around either of the two lines will indicate early signs of a breakout to the upside or downside. The pattern on the weekly chart points to a possible bullish resolution. A bullish reversal was triggered this week with a rally above last week’s high of 2,665. And there’s a good chance the breakout will be confirmed this week, with a likely close above last week’s high.
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