Gold: A bullish flag breakout could target 1200+

<p>Draghi’s dovish comments from earlier today have led to out-and-out rout in the euro, with the single currency falling over 200 pips against the US […]</p>

Draghi’s dovish comments from earlier today have led to out-and-out rout in the euro, with the single currency falling over 200 pips against the US dollar and even further against previously beaten-down currencies like the New Zealand dollar. With the prospect of a further easing from one of the world’s most important central banks, you would expect to see strength in commodities like oil, gold and other metals, but the accompanying dollar strength appears to be overwhelming this effect.

Despite a modicum of weakness today, gold’s technical outlook remains optimistic in the near-term. After peaking near 1190 last week, gold has nudged its way back down to 1165 as of writing. The shallow, controlled pullback after the big rally of the previous days has created a clear bullish flag pattern. It’s worth noting that, despite its name, 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 that we could see 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. Meanwhile, the RSI indicator is in an uptrend of its own and has pulled back from overbought territory, potentially clearing the way for another leg higher.

Looking ahead, a break above the top of the flag at 1180 could open the door for a move up to 1200 next, and the measured move target of the pattern actually comes up closer to the 1250 level. Bulls would do well to temper their enthusiasm for now though, as a failure to break out of the bullish flag pattern could lead to a deeper retracement toward the 100-day MA in the 1140 zone.

golddaily10-22-2015 1-40-38 PM

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.