Gold Nearing Trigger Point for Upside Breakout

Gold’s close on Friday over a significant level on the charts may be a strong sign that investors are finally committing to the long side after a mostly sideways trade since late February.

If you look at the Weekly December Comex Gold futures chart, you’ll see that the market has been range bound for over a year.

On July 6, 2016, gold topped at $1396.00 and it bottomed at $1139.70 on December 15, 2016. This created a key 50% to 61.8% retracement zone at $1267.90 to $1298.10.

Since the bottom was reached, gold has tested this retracement zone twice. Each attempt to breakout to the upside has failed, first at $1307.00 on April 17 and second, at $1305.50 on June 6.

Traders should also note that even though the upside breakout attempts have failed, the market has formed two higher bottoms at $1207.40 and most recently at $1211.10. This indicates that buyers have been coming in to defend the long side.

By definition, an uptrend is a series of higher tops and higher bottoms. Currently, the two higher bottoms are helping to support a developing uptrend, which means a higher high could trigger an acceleration to the upside.

While the weekly closing price reversal bottom at $1211.10 may have been the first sign that the buying is greater than selling slightly above the psychological $1200 level, Friday’s close on the strong side of the major, long-term 50% level at $1267.90 may be a sign that the buying is getting stronger.

A sustained move over $1267.90 will indicate that buyers are coming in to support a rally. This could generate the upside momentum needed to drive the market into the Fibonacci level at $1298.10, followed closely by a pair of tops at $1305.50 and $1307.00.

The top at $1307.00 is the trigger point for an acceleration to the upside.

Fundamentally, the catalyst behind the next move in gold will be U.S. Treasury yields. Lately they have been falling and this has been supportive for gold. The chart pattern suggests gold will have to spike higher in order to fuel the breakout rally. Therefore, yields are going to have to plunge in order to create the momentum needed to launch gold prices higher.

Gold appears to be setting up for an upside breakout, but needs a catalysts to begin the move. We’re currently watching for a catalyst. Recent events suggest it may be geopolitical events regarding North Korea, political events involving the Trump administration, or an economic shock in the form of downbeat U.S. Non-Farm Payrolls report on Friday.