Gold Forms Bullish Pennant as Price Consolidates Near Highs

Gold Forecast Video for 29.03.23 by Bruce Powers

Gold trades inside day as it further consolidates around the recent highs. Support continues to be seen around the 34-Day EMA (orange), which has been tested as support on three days including today. The consolidation phase has formed into a bullish pennant.

Bullish Pennant

A bullish pennant is a classic trend continuation pattern in technical analysis where a small symmetrical triangle has formed following a relatively sharp advance referred to as the pole. We see that in gold. The recent advance was 11.1%, measured from swing low to high. In addition to the bullish relationship with the 34-Day EMA, part of the pennant is forming above the prior swing high from early-February, indicating strength.

What is interesting about this pattern is that, once it breaks out, gold has the potential to accelerate in a similar manner to what was seen prior the consolidation pattern. A bullish breakout occurs on a rally above the top border line of the pennant. However, in the situation with gold there is a more reliable signal on a move above the small swing high of 2,003. Breakouts can always fail so by using a slightly higher price level there is a little more confidence that the breakout is real and may be sustainable. On a move above 2,003, gold has not only broken above price structure, but it has also completed a breakout above the top line.

Potential for Acceleration in Price After Breakout

We can calculate the potential minimum target based on the pole and pennant. The pole is measured from its initial breakout to the top of the pole or trend. In this case the beginning would be when it took off above 1,858, shown with a circle on the chart. By taking the recent high of 2,010 and subtracting 1,858 we arrive at a difference of 165 points. We can then add that to the top border line of the pole to determine a potential target. That target would be approximately 2,158 give or take a few dollars. There is no guarantee the target would be met but it does tell us that there is potential upside once a breakout occurs.

Failure of Pattern Indicated if Price Drops Through Bottom

A failure of the pattern begins to be suspected if price drops through the bottom border line, and further still on a break below price structure of the pennant.

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