Gold Price Forecast: Setups Up with Bullish Pennant Pattern

Minor Pullback Shows Strength

There was only a minor pullback following the record high of $2,943 reached five days ago. And then there was an attempt to break out above that high last Friday before the sellers took back control and drove the price of gold lower. The day ended in a clearly bearish position near the lows of the day and having established a possible double top pattern.

A clear decline from a second high would be expected to lead to further weakness. But given today’s bullish price action the bearish implications of Friday’s trading activity seem to have diminished. Instead, gold could make another attempt to go higher before a deeper pullback and it may have some success. Regardless, indications of strength would be needed to indicate that gold may go higher.

Bull Pennant Forms

Since the new record high was hit last week a bull pennant pattern has formed on the daily chart for gold. It takes the form of a small symmetrical triangle. Today’s high price confirms the top boundary line of the pattern as there are three points touching the line. Therefore, a rise above today’s high of $2,937 would provide a bullish signal but with less confidence than a decisive breakout above last Friday’s high of $2,940.

A sustained bull breakout of the pennant would confirm the bullish reversal following an attempt to breakdown last Friday. Therefore, a bull breakout may have greater strength given the failure of the breakdown. Failed patterns can lead to sharp moves in the opposite direction. Nevertheless, gold could consolidate further within the pattern before it is ready to move.

Counters Last Week’s Bearish Indications

It is interesting to note that a similar situation would occur on a breakout above the $2,943 high, which is also a weekly high. Gold established a potentially bearish shooting star candlestick pattern last week. It shows a weekly closing price in the lower third of the week’s price range. Although the one-week pattern needs to be confirmed by a breakdown below last week’s low, it nonetheless shows sellers in charge and the potential for further bearish price moves.

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