Gold Price Consolidates

The price of gold is going through a short term consolidation as the recent events on a global stage abate and gold looks for direction. A breakout of the pennant shape is the likely outcome and traders can take advantage regardless of direction.

First it was the Portuguese bank, Banco Espírito Santo, which sent the price of gold higher. It failed to meet its debt obligations and caused a minor panic in the equities markets in the EU which drove many to seek the safety of gold. Early the next week reports emerged that the issues had been sorted leading many to reverse their gold positions. This was followed by US Federal Reserve Chairwoman Janet Yellen telling congress that interest rates are likely to rise sooner than expected, putting more pressure on gold prices.

The downing of flight MH17 by pro-Russian rebels and the invasion of Palestine by Israel sent the price of gold back up as risk appetites once again decreased and investors demanded safe haven assets. The recent news that the rebels are co-operating with investigators has reduced fears over the incident causing a large scale conflict.

There is little on the economic calendar this week that will cause a large shift in the price of gold. US Unemployment claims on Thursday (12:30 GMT) could provide a bit of direction for gold and possibly be the catalyst for a breakout. Next week, however, is likely to be action packed for gold. Consumer Confidence, GDP, Federal Funds Rate, Nonfarm Payroll and Unemployment Rate are all big events for gold, so it will pay to watch the news before jumping in.

The bearish and bullish trend lines are likely to converge before we make it to the end of this week so a breakout is likely in the near term. Conventional wisdom would suggest that a breakout is likely to be towards the upside since we are currently in somewhat of a bullish trend, however I would not bank on this. The best way to take advantage is to set up stop entry trades both above and below the pennant shape, with stop losses back inside the shape to protect against false breakouts.

A breakout is likely to look for previous levels of support/resistance as sticking points which traders can target as exit points. To the downside, support will be found at 1301.97, 1298.57 and 1292.16. To the upside resistance will be found at 1318.47, 1324.79 and 1345.08.

The Gold market looks to have quietened down recently and the price has consolidated as a result. In the absence of proper direction for the market, a breakout either side of the pennant shape is possible.