A Technical Look A Gold Pattern: A Bullish Flag Breakout Targets 1200+

$GLD

ECB President Draghi’s dovish comments from Thursday led to a rout in the Euro, with the single currency falling over 200 pips Vs the USS and even further against the commodity currencies.

With the prospect of a further easing from 1 of the world’s most important central banks, we expected to see strength in commodities like Crude Oil, Gold and other metals, but the accompanying USD strength overwhelmed.

Despite the weakness Thursday, Gold’s technical outlook is still optimistic near term. After topping near 1190 last week, Gold has found its way back to 1165 early Friday. This controlled pullback after the big rally of the previous days created a Bullish flag pattern.

It is worth noting that this pattern is only seen as a bullish sign if we see a breakout above the top of the flag currently near 1180.

That said, the secondary indicators suggest a Bullish breakout sooner rather than later.

The MACD continues to trend higher above its signal line and the ‘0’ level, showing Bullish momentum despite the recent dip.

The RSI indicator is in an uptrend too, and has pulled back from overbought territory, potentially clearing the way for another leg North.

Looking ahead

A break above the top of the flag at 1180 could open the way for a move up to 1200 next, and the measured move target of the pattern actually comes closer to 1250 .

But, a failure to break out of the Bullish flag pattern could lead to a deeper retracement toward the 100-Day MA in the 1140 area.

India, the world’s 2nd-biggest Gold buyer after China, imposed the import restrictions last year to avert a trade deficit crisis that pushed the Rupee to record lows.

“Restrictions placed on import of Gold… stand withdrawn with immediate effect,” India’s central bank said in a statement on Saturday, 29 November.

Support for Spot Gold comes from jewelry demand from India in the lead up to and during the wedding season, which starts again in late September. India did record a 176% increase in Gold imports in August to US$2-B from about US$756-M.

Overall, the impact of wedding season Spot Gold  buying has faded in recent times as India is no longer the world’s largest Gold consumer, partly because of the on-going government  import restrictions on precious metals. If they are further relaxed, perhaps India will regain its Top spot.

India’s Akshaya Tritiya festival considered by India’s more than 900-M Hindus as an auspicious day to buyGold and Silver, fell on 21 April this year. Bullion is bought in India during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives.

Stay tuned…

HeffX-LTN

Paul Ebeling