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Gold: $1,448 is Next Target But Watch for Consolidation

Gold prices powered to a new record high of $1,410 on Tuesday, extending its record-breaking rally to a third day, as safe-haven buying prompted by renewed budget problems in Ireland more than offset a sharp dollar bounce.

Prices were also bolstered by the Fed's easing - spot gold has risen almost 6 percent since the U.S. central bank unveiled plans to buy $600 billion worth of Treasurys last week.

Have traders missed the rally, or does this market still have further upside?

The daily New York Mercantile Exchange Gold chart shows strong uptrend and a retest of the long term uptrend line that started in July (see chart). The retreat from $1,381 was a collapse of the small bubble which had formed in the gold price. The character of the rebound helps confirm the strength of the underlying trend.

The fall in the gold price found support from the long term uptrend line. The price also found support at the value of the upper edge of the long term group in the Guppy Multiple Moving Average indicator. This indicated strong and consistent investment buying and signaled an entry opportunity for traders and investors. This rally and consolidation also created a small support level near $1,321. This is an important component of the calculations used to set new upside targets for gold.

The peak gold price was $1381. This peak will also form a small instance level for any new price rise. This becomes a psychological resistance point. This combination of temporary support and resistance creates a small trading band. This is not a consolidation area. It defines the temporary support and resistance areas. The width of this band is measured and this value is used to calculate the upside breakout targets.

The band is $60 high and this value is projected above $1381 to give an upside target near $1441. This target is verified using another set of chart measurement techniques.

Between 2010 April and August gold developed another trading band pattern. The lower edge of the pattern was at $1,160. The upper edge of the pattern was at $1,256. The width of the pattern was $96. When this was projected above the upper edge of the trading band it gave a target near $1,352. This was achieved, and it provided some resistance features as the gold price rose to $1,381.

The value of this first trading band is projected above the first target level near $1,352. This second projection gives a new target near $1,448. This second target projection method helps confirm the target calculated from the more recent trading band.

The type of double projection of the trading band has been successfully used to set upside targets for several other markets and stocks that show a similar chart condition.

The long term trend line starting in 2010 July helps to define the development of the trend. The $1440 to $1448 upside target remains valid if the gold price continues to stay above the long term trend line. Investors watch for consolidation behavior to develop near $1440 to 41448 area before deciding if the gold price can continue to rise.

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.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

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  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

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