May Still be Early for Gold’s Next Bull Phase

Strengthening Trend

Notice the increasing angle of ascent for the rising trend that formed following the base breakout. This reflects an improvement in underlying demand. There are three lower rising trendlines that mark support for recent upswings, as seen on the daily chart. The most recent line connects to the May 1 low as it generated a higher swing low. The lower trendline is associated with the 100-day moving average (light blue), the 50-day moving average (orange) is near the middle line, while the 20-day line (purple) is near the recently added trendline.

Overall, this shows improving demand for gold and the potential for higher prices, possibly at a faster rate than seen before the April swing low of $2,956. The new and higher slope of the uptrend as indicated by the 20-day moving average was only confirmed on May 1. Notice that the April swing low found support around the 50-day moving average and now similar bullish behavior is occurring near the faster moving 20-day moving average. Look at the increase in bullish momentum following a bounce off the 50-day moving average in early April. Similar enthusiastic buying may begin again.

Bull Flag Breakout Strikes

Gold broke out of a bull flag trend continuation pattern earlier this week that found support at a low of $3,202. That low is now a higher swing low with a short rising trendline touching it. If the potential upside projected from the flag formation is an indication of what might be possible for the price of gold in the relative near-term, strong bullish momentum may stay around for a little while longer. Both Monday and Tuesday, May 5 and 6, candle patterns show buyers in control for the full trading session, as reflected in the wide candlestick body. The patterns show strong bullish momentum during the flag breakout. The flag breakout is a success so far and can be anticipated to lead to a possible new trend high above $3,500. 

Pattern Objectives

There are two potential targets that can be projected from the bull flag formation, and they are derived from the sharp $544 or 18.4% rally that preceded the bearish pullback that formed the flag. That rally generated the pole portion of the bull flag pattern. It provides insight into what might be possible following the breakout of the flag. The first estimated target is at $3,840 and it is based on a price relationship to the first rally. Then there is the second target that is calculated on a percentage basis, and it shows a price projection to $3,854 based on the bull flag pattern. 

Upside Likely Unless Gold Drops Below $3,202

Whether the targets derived from the flag are eventually reached or not, the analysis indicates that the price of gold is likely to continue to rise as demand is improving. The trend is up on all time frames. Nevertheless, the outlook could change if the price of gold fell below key support seen at the recent swing low of $3,202.

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