Gold Price Forecast: Three White Soldiers Signal Powerful XAU Rally Breakout

Gold’s advance continued into its third consecutive day of strong gains on Friday, reaching a new record high of $3,245 before stalling its ascent. The rally triggered a decisive breakout above a top channel line (blue), which followed a second breakout attempt of a larger trend channel on Thursday (purple). Since Thursday’s session closed above the purple channel line, the breakout was confirmed.

The breakout of the blue channel looks likely to be confirmed today with a daily close above the line. Trading continues in the top third of the day’s trading range at the time of this writing, with a likely similar strong close for the day and therefore the week. The week will end with a bullish engulfing pattern on that higher time frame as the body of the candle (open to close) covers the full range from Thursday. Furthermore, there may be added significance to the week beginning bearish with a decline and test of support around the prior trend high of $2,955.

Three White Soldiers Form

The three-day advance took the form of the three white soldiers candlestick pattern, which primarily are part of a bullish reversal. Three tall green candles with a closing price near the highs, small or no tales, and sequential higher daily highs and higher lows define that pattern. It reflects strong demand during the three-day advance, with a likely upside continuation breakout. When combined with the breakouts of the two trend channels, the potential is heightened. Whether the bullish implications occur quickly or take a little time, however, remains to be seen.

Pi Ratio Reached

Resistance for the day was seen just shy of the 3.414% (pi) extended retracement of the short-term pullback that began from the February interim swing high of $2,956. Also, there is a long-term 250% extended retracement of the decline from the September 2011 high at $3,232, and it looks like gold may end the day very close to that long-term target. Nevertheless, since it is derived from a long-term pattern, it has potential significance, particularly when joined by other target levels.

Breakout to New High is Bullish

A decisive breakout above today’s high of $3,245 triggers a potential bullish continuation for gold. The next upside target is then around $3,300. At the same time, resistance could be seen either before or after a new high. Today’s low of $3,173 is the obvious near-term support level watch so far.

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