E Gold On The Verge Of Inverse Head-And-Shoulders Breakout

Since it had a bullish reversal on a bump-and-run bottom pattern in the late December, gold has staged a sharp bounce for more than two months. Recently prices of gold moved above the 89-day exponential moving average which objectively indicates that the intermediate-term becomes bullish. In fact, the trading moves during last several months have begun to form a potential inverse head-and-shoulders pattern, as shown on the chart below. This formation is usually viewed as a bullish signal that a change in price trend is about to occur.

The pullback of gold in March looks like the right shoulder of the pattern, and it is near its completion now. The closing price yesterday reached right below the neckline of the pattern. The resistance of the neckline will be soon tested. Once gold crosses its inverse H&S neckline at this point, the buying pressure will likely bring gold price going higher. If we calculate the height of the pattern and multiply it by 74% of the percentage meeting price target defined by Thomas Bulkowski’s measure rule, we get a price target of 1370, which also coincides with the high of last August. But for this formation to get validated, it will need to break above the neckline and continue its upward move in the coming weeks.

The bullish view on gold is also supported by recent bearish moves of the US dollar which has a head-and-should top pattern as shown on the chart below. Prices of the dollar broke below the neckline of the H&S formation last week and continued to expand on the sell-off this week. Based on Thomas Bulkowski’s measure rule, the downside price target for the dollar is estimated at 97. The bearish dollar should increase the chances of getting gold to break out from its inverse H&S pattern.