Friday, 6 March 2009

Gold - forming an inverse head and shoulders pattern

A very intriguing patterns is developing on the weekly chart for the exchange traded sector fund GLD which tracks the spot price of the metal. The price of the ETF approximates to one tenth of the actual spot price.

What is manifesting itself on this chart is a rather convincing case of an inverse head and shoulders pattern where the right shoulder is currently unfolding. The neckline of the chart is to be found around 98, or close enough to the recent attempts to challenge the $1000 spot price.

If the pattern continues to evolve it suggests that the right shoulder could be another few weeks in the making, with even the possibility of a pullback to around the $850 per ounce level, but that a subsequent rally back to the neckline could have substantial momentum and propel the metal to much higher prices.

Applying the basic approach to a head and shoulders technical pattern a move of around $350 is feasible once we approach the neckline. This would match the distance between the neckline and the lowest point on the chart - or the head from an inverse perspective. If the pattern continues to evolve the projected break away target would be at least $1,350.

1 comment:

  1. I agree. Sentiment is also quite negative, what with all the gold-skeptics, and therefore quite bullish.
    Isam Laroui (