Gold Traces Bullish Chart Pattern
These days there is much debate about the future direction of gold. Fundamentals of gold are muddled. On one hand central banks continue to print lots of money, but on the other, inflation seems to be under control.
Under such circumstances when the fundamentals are in flux, one can gain greater insight by turning to technical analysis for guidance.
As the chart shows, gold has traced a symmetrical triangle pattern. Many adherents of traditional technical analysis believe that generally a symmetrical triangle is a continuation pattern. Since the long-term trend of gold is up, the symmetrical triangle implies a breakout on the upside and is thus a bullish pattern.
A symmetrical triangle is traced out when two conditions are met. First, neither bulls nor bears are in control. Second, both bulls and bears have lesser and lesser conviction in their position.
In my testing on data from recent years, a symmetrical triangle has often turned out to be a neutral pattern. Nonetheless, a symmetrical triangle offers valuable information. My testing does agree with traditional technical analysis in terms of what happens after the price breaks out of the triangle. More often than not, after some backing and filling the price moves strongly in the direction of the breakout.
Since silver and mining stocks such as Silver Wheaten, Newmont Mining, and Barrick Gold tend to follow gold, the breakout direction in gold will also apply to silver and mining stocks, accessible via the SLV and GDX ETFs.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article.