Gold’s next entry point

Looking at the monthly chart of gold, we can see a strong rally that stalled at $1300/ounce. Consolidation below $1300 would be a bullish sign, suggesting a long-term advance to $1550*. Breakout above resistance would confirm.

Gold

* Target calculation: 1300 + ( 1300 – 1050 ) = 1550

But correction to test support at $1200 remains a possibility. Again, recovery above $1300 would confirm another advance.

The weekly chart adds more nuance. We have already seen two successful tests of support at $1200, making a third test less likely. Respect of medium-term support at $1250 would suggest another advance.

Gold

The daily chart adds further detail, revealing a broad saucer pattern (similar to a shallow cup and handle) through March-April, indicating strong buyer interest. This was followed by a flag, now in its third week, which suggests continuation of the up-trend. Breakout above the flag (at $1280) would signal another advance. Follow-through above $1300, as mentioned earlier, would confirm the signal.

Gold

The question is: If the flag successfully completes, do we take the signal at $1280 or wait for confirmation at $1300? If there is a breakout above $1300, the floor may get pretty crowded, making it difficult to fill your order. If we take the earlier signal, probabilities will be in your favor but there is no guarantee that the breakout (at $1300) will occur. There are no hard rules for this and I prefer a pragmatic approach. If your capital is sufficient, why not take a three-way bet? Fill a third of your position at $1280, a third at $1300, and the other third on retracement that respects the new support level (at $1300).

Disclosure: Our Australian managed portfolios are invested in gold stocks.