Gold is built on demand and supply, but its movement is driven by psychological factors. This is seen in the variety of psychologically based patterns in the gold behavior. The first of the these was the parabolic trend that developed between March and December of 2009. This trend shows accelerating excitement which collapses quickly. The 2009 December price retreat was sudden.
This was followed by an inverted head-and-shoulder pattern starting January of this year and ending in March. This pattern captures the increase in bullishness as market trends recover. The chart pattern target of $1,250 was achieved in June. The pullback from this pattern target found support near $1,160 and this is the important technical feature used for understanding the potential future price development.
A peak at $1,250 and support at $1,160 have the potential to define a broad trading band. The upper edge of the band was tested in May and June. The lower edge of the band was tested in January, April and July. The width of the band is projected upwards above the upper edge of the band and provides a longer term price target near $1,340. There is a high probability the new trend will develop consolidation behavior near $1,250 before breaking above this resistance level.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
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