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Gold Breaking Above a Triangle Pattern


On January 12 gold futures (February) broke above a triangle pattern which extents back to late October.

December saw a higher swing low, and now January is seeing the price create a higher swing high. On January 13 the price moved above the December high of 1239, although only for a brief time (so far).

Figure 1. February Gold Futures - Daily Chart

gold 1.jpg

If the triangle (green lines) breakout is legitimate, the pattern provides a price target of 1345, which is right near the July high. If the price falls back into the triangle, and especially below 1200, it shows this was likely a false upside breakout.

Resistance is prevalent between 1240 and 1280, so reaching the upside target isn't likely to be easy. With a stop loss below 1200 or a 1180 (just below the lower triangle trendline) the risk/reward on the long trade is favorable. The downside is the trade is in the face of the longer-term trend.

Some traders may wish to see if this upside breakout is false, entering short near 1220 in alignment with the long-term downtrend expecting it to continue.

Seasonally, gold has a tendency to rally through January and February.

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