It’s been a very quiet couple of weeks for gold bears, with the yellow metal merely marking time around the 1200 level since the start of the month. Since April Fool’s Day, gold has traded as low as 1180 and as high as 1220, but the trading range has been contracting, creating a clear symmetrical triangle pattern on the 4hr chart. As we’ve noted before, this pattern is analogous to a person compressing a coiled spring: as the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction. The metal is testing the bottom of the pattern today as a stronger-than-expected US housing report and rising stocks dampens demand for the safe-haven asset.
While it’s notoriously difficult to predict the direction of a symmetrical triangle breakout in advance, technical oscillators can often help tilt the scales in one direction or another. In this case, the RSI indicator recently broke out to the downside of its corresponding symmetrical triangle, providing a possible leading indicator of a bearish breakdown in gold itself. The 4hr MACD is also trending down beneath its signal line and the “0” level, showing a shift to bearish momentum.
As we go to press, gold is testing the bottom of its triangle pattern near 1186, but if that level is conclusively broken, a quick move down to 1180 is in play later this week. From a longer-term perspective, a breakdown from the triangle would suggest a measured move objective all the way down to the year-to-date low at 1140. Of course, gold may still manage to bounce from the bottom of its triangle today, but unless we see a bullish breakout above resistance at 1200, the odds favor an awakening for the bears that have been hibernating throughout the first three weeks of April.