Gold Technical Analysis: Trapped in a contracting triangle

Gold’s 12-day-long consolidation near $1,300 has taken the shape of a contracting triangle, the 4-hour chart shows.

4-hour chart

The key moving averages (MAs) – 50, 100, and 200 – are trending north and are located one above the other, indicating the path of least resistance is on the higher side.

Therefore, the risks of a contracting triangle breakout are high. Moreover, a breakout, if confirmed, could yield a rally to $1,307 (March low).

Daily chart

On the daily chart, a golden crossover (a bullish cross between the 50- and 200-day MA) is almost confirmed.

While textbooks refer to it as a bullish pattern, in reality, the crossover represents short-term overbought conditions. This is because, it takes a great amount of effort on the part of the bulls to push the 50-day MA above the 200-day MA. Put simply, a major part of the rally has already played out by the time the crossover is confirmed.

Consequently, golden crossover confirmation is often followed by a pullback.

Gold, therefore, could see a downside break of the contracting triangle or the bullish breakout, if confirmed, could end up trapping the bulls on the wrong side of the market.

Trend: Neutral-to-bearish