Sustained bullish momentum seen for gold

SINCE March, gold has set a series of record highs, breaching levels above US$2,431 in April. This milestone reflects the growing demand and positive sentiment towards the precious metal. Currently, the price of gold hovers between US$2,300 and US$2,400. While short-term fluctuations in gold prices can be hard to predict, the long-term trend remains largely bullish. Here, we highlight key observations through technical analysis that support this bullish projection.

The decisive bullish breakout from a long-term ascending triangle in March, above the resistance around the US$2,080 zone, indicates strong and sustained buying pressure. This ascending triangle, a bullish continuation pattern, began forming in March 2020. The pattern is characterised by a horizontal line connecting price highs (resistance) and a rising trendline connecting price lows (support). It suggests that buyers are getting stronger as the lows rise. A breakout from the upper resistance signals an upside with a target equal to the height of the ascending triangle. Moreover, the fact that gold prices did not retrace to retest the breakout level at around US$2,080 serves as another bullish confirmation.

Analysing gold prices on the monthly chart reveals the completion of another long-term bullish pattern - a cup and handle - that began in September 2011. This pattern resembles a cup with a handle: the “cup” is a U-shaped price movement where the price rises, dips, and then recovers, followed by the “handle”, a short downward trend where the price consolidates briefly. This pattern suggests a potential price increase or continuation of an upward trend. If the price breaks above the high point of the cup, it is considered a bullish signal, prompting traders to expect further price gains.

In the shorter term, gold prices are on track to achieve the ascending triangle target of US$2,500. Examining the daily chart, additional signs support better odds for the bulls. Prices are finding support above the 20- and 50-day exponential moving averages, and there has been a breakout from a bull-flag pattern formed since late March. This bull-flag breakout provides a technical target at around the US$2,540 region. The completion of the cup and handle pattern on the monthly chart suggests a long-term target as high as US$3,000.

In conclusion, technical analysis of gold prices indicates a sustained bullish trend with significant potential for further gains in both the short and long term.

The writer is strategist at Phillip Nova