Gold Price Forecast: Counter-Trend Rally Strengthens to a High of 2,678
Short-term Strength Inside Bearish Channel
Despite signs of short-term strength, the advance in gold is a counter-trend rally inside a larger declining trend channel pattern. Therefore, the potential impact from the channel is considered to take precedence until proven otherwise. If the integrity of the channel structure is maintained, then resistance may be seen around the downtrend line, followed by a turndown and lower prices.
The 78.6% retracement level at 2,695 can also be considered since it is relatively close to the trendline. Overall, a bullish reversal of the bearish correction is not clear until there is a rise above the most recent swing high at 2,726 as it is a lower swing high and part of the downtrend price structure.
Contracting Price Range
In addition to the channel pattern, the current short-term advance is part of a developing consolidation range defined by the top downtrend line and rising trendline across the bottom that connects the December 19 swing low at 2,582. Overall, the consolidation range has been contracting and showing a symmetrical triangle type pattern with two lines converging at the apex of the triangle on February 6 (brown horizontal). Periods of price contraction or lower volatility are commonly followed by price expansion – trending and increased volatility.
Volatility Likely Spikes Before February 6
Price action around each of the two lines will indicate early signs of either a breakout to the upside or the downside. The pattern on the weekly chart is pointing to a possible bullish resolution. This week a bullish reversal was triggered with a rally above last week’s high of 2,665. And there is a good chance that the breakout will get confirmed with week with a likely close above last week’s high.
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