Is Gold Forming A Bear Pennant Ahead Of The Fed?
New York (Mar 16) Gold prices gained in early New York trading, but the market is holding within recent ranges ahead of Wednesday's U.S. Federal Open Market Committee meeting. A potential bear pennant pattern could be developing on the daily chart, but that has not been confirmed.
The near term trend outlook is bearish for gold and traders will be eyeing this week's Fed meeting closely for any fresh clues on the timing of a first interest rate hike. Many analysts are now pointing to September as the likely time for a notch up in U.S. rates from the current zero-bound level. But, concerns over a lack of inflation pressures and a recent spate of weaker-than-expected economic data are clouding the issue.
Technically, a potential bear pennant pattern could be forming on the daily April gold chart, but this has not been confirmed. See Figure 1 below. The flagpole portion of the possible pattern has formed starting with the wide range bar day on March 6, and the current consolidation could be forming the pennant.
These formations are continuation patterns, which means if a downside breakout occurs below the pennant bottom it would trigger a measured move target equal to the flagpole. The measured move target would project potential losses as low as $1,100 per ounce.
In order to confirm the bearish implications of this pattern, gold would need to post two consecutive settlements below the bottom of the pennant at the March 11 daily low at $1,146.50.
However, there are other technical signals that show the bears may not have enough momentum for a strong down wave currently. The 14-day relative strength index, a widely watched daily momentum tool is registered oversold readings at 28% early on Monday. The oversold momentum could limit downside scope for gold in the short-term. Also, the gold market is hugging the lower daily Bollinger Band line support area (not shown here). Generally, markets are unable to sustain significant moves below the lower daily Bollinger Band line for long.
On the upside, resistance lies at the $1,174.40 area and a rebound above that ceiling would destroy the possible bear pennant pattern.
On the downside, major support lies at the $1,132.10 zone, the Nov. 7 daily low. If a strong downside breakout is seen below the pennant that floor will become vulnerable.