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Are Gold Bulls Carving Out A Major Bottom Pattern?

By Kira Brecht of Kitco News
Monday April 6, 2015 9:01 AM

(Kitco News) - Gold prices surged higher in early Monday trading boosted by Friday's weaker-than-expected U.S. employment report, which triggered expectations that Federal Reserve interest rate hikes could be pushed out even farther than previously expected.

Stock index futures are down sharply in early pre-market action, while Comex June gold futures are trading above the $1,200 per ounce level most recently up $17.80 at $1,218.70.

Technically, the gold market is testing a critical resistance level from the March 2 and March 26 highs at $1,223.70 and $1,220.40, respectively. Action around that zone will be key for the gold market going forward this week. A potential inverted head and shoulders bottom pattern could be developing on the daily gold chart. This pattern has not yet been confirmed, but gold is testing the breakout point.

The "head" of the formation is seen at the March 17 low on Figure 1 below. The left shoulder formed in late February and the right shoulder formed in late March. The neckline trendline is drawn off the March 2 and the March 26 high and comes in around  $1,219.10 on Monday. Generally two consecutive settlements are needed above the trendline to confirm the bullish potential of these types of patterns.

The measured move target of the bottoming formation projects potential gains back toward the $1,300 per ounce region. But, again the pattern has not yet been confirmed. Traders should monitor action around the March highs closely this week.

Daily momentum is generally rising and supportive. Also market positioning is favorable for gold as traders have been building up short positions in recent months, which leaves the yellow metal vulnerable to a short squeeze higher. "Net fund length in Comex gold is hovering around levels last reached in January 2014. Gross shorts are at their highest since November," wrote Barclays in a research note.

Gold bulls are at a critical juncture to start the week, but the winds are blowing in their favor.


By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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