Key Takeaways
- Gold prices climbed to set a new record high on Tuesday as investors move into the precious metal amid rising expectations that the Federal Reserve will lower its benchmark interest rate in September.
- The gold price has broken out from a rectangle pattern, indicating a continuation of the commodity’s current uptrend.
- A bars pattern, which takes the trending price action between February and April and applies it to the rectangle’s breakout point, projects a price target of around $2,950.
- During retracements, the precious metal may find buying interest near key chart levels at $2,190, $2,090, and $2,000.
Gold (GOLD) prices climbed to set a new record high on Tuesday as investors move into the precious metal amid rising expectations that the Federal Reserve will lower its benchmark interest rate in September. Falling rates increase the non-yielding commodity’s demand by reducing its opportunity holding cost relative to interest bearing assets, such as fixed-income securities.
Below, we zoom out on gold’s weekly chart to identify important technical levels to watch out for as the commodity continues to glitter.
Breakout from Rectangle Pattern
Gold has trended sharply higher after breaking out above multi-year resistance around $2,000 in November last year. More recently, the precious metal’s price has consolidated within a narrow rectangle since early April, a chart pattern that indicates a continuation of the current uptrend.
This week’s breakout above the rectangle suggests the commodity’s next move higher may have resumed. It’s also worth pointing out that the relative strength index (RSI) has moved into overbought territory, which confirms strong price momentum, but also increases the probability for short-term pullbacks.
Watch This Key Level if Bull Run Continues
To gauge where the price of gold may be headed next, we can use a bars pattern that takes the trending price action between February and April and apply it to the rectangle’s breakout point.
This technique projects a price target around $2,950, an area on the chart where bullion bulls may also be happy to book profits after two distinct trending legs higher.
Monitor These Important Pullback Levels
Amid periods of profit-taking, there are three important chart levels that may come into play during retracements.
The first area to watch sits at $2,190, or around 12% below the current price, a location that may attract buying interest near a short pause in the commodity’s impulsive move higher between February and April.
A breakdown below the level outlined above could see the price decline to around $2,090, where it would likely encounter support from a range of bars following gold’s late-November breakout.
Finally, a deeper sell-off could lead to a retest of the psychological $2,000 level, where the precious metal would likely garner significant support from a horizontal line that links multiple prior record highs over the past four years.
When monitoring these levels, it’s important to use other forms of technical analysis, such a candlestick patterns and indicators, to confirm a resumption of the longer-term uptrend in the commodity.
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As of the date this article was written, the author does not own any of the above securities.