Forex Trading Library

Gold’s Cup and Handle Pattern signals further upside

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The metals market is looking more and more bullish with Gold closing January with 5.2% gains while Silver prices closing with modest gains of 2.58% for the month. The gains in Gold, in particular, came about on a rough start to the markets where China’s slowing manufacturing led to the markets seeking safe haven yields. With most of the safe haven currencies now yielding negative interest rates, namely the Yen and the Swiss Franc, Gold remains the only safe haven which yields 0%, making it a more preferred asset to hold than the currencies. Furthermore, the confluence of both technical and fundamentals in Gold make it an attractive proposition as well.

Gold – Technical Outlook

Gold prices closed on a bullish note last month, above the December highs of 1088.92. The monthly close above the December’s doji candlestick pattern is likely to see further gains in Gold with $1150 now the most likely target to the upside.

This view is further evidenced by the fact that the daily chart shows a strong Cup and Handle chart pattern. The Cup and Handle pattern is a strong basing pattern often associated with a turnaround or a reversal in the trend. Price action broke out off the handle near 1089.8 following a break above the resistance level of 1108.3 – 1099.05 after forming a base near 1052.8. Based on the measured move, Gold prices are expected to move to $1154.55. Current daily chart, however, has closed on a near doji candlestick pattern yesterday which could signal exhaustion to the uptrend which began around 15th of January this year. A dip back to 1108.3 – 1099.05 region to establish support could signal a move to the upside.

Gold – Daily Chart Cup and Handle pattern
Gold – Daily Chart Cup and Handle pattern

On the 4-hour chart, price action has formed a rather large consolidating wedge/triangle pattern. Support is identified near 1125 – 1128 region, which if broken could see Gold prices post a correction to 1108.3 region, marking a decline back to the previous resistance level of the Cup and Handle pattern.

Gold – H4 Chart, Consolidation in the rising wedge pattern
Gold – H4 Chart, Consolidation in the rising wedge pattern

In conclusion, Gold’s outlook is bullish with a test to $1150 very likely after prices formed a cup and handle pattern. The short term chart points to  a correction lower back to the resistance level of the cup and handle pattern near 1108 – 1099 region which if holds as support could signal a move to the upside.

Silver – Technical Outlook

Silver prices have formed a base off the 13.86 support over the past few weeks with price action currently testing the resistance of 14.58 – 14.4 region. It is likely that Silver could remain range bound at these levels ahead of a breakout to the upside. Above 14.58 – 14.4 resistance, a move to 15.095 is quite likely to establish resistance on a previously broken support level.

Silver – Weekly Chart, Price at resistance (14.58 – 14.39)
Silver – Weekly Chart, Price at resistance (14.58 – 14.39)

On the daily chart, we notice price action is well supported above 14.12. However, a retest back to this level could establish support, in which case Silver could test the immediate resistance at 14.55 following 15, marking the main resistance off the weekly chart. There is a risk to the downside, in the event Silver fails to establish support near the 14.12 – 14 level of support, which could see a test back to the previous lows.

Silver – Daily Chart, (14.12 – 14) support
Silver – Daily Chart, (14.12 – 14) support

In conclusion, Silver prices are biased to the upside as long as support above 14 holds. A move to test 15 is very much a possibility in such an instance, but a break below 14 could easily expose Silver to test the previous lows.

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