A successful breakout will reach this target very quickly. The key feature of any sustainable breakout is the way support develops when the market retreats from the first breakout target. A retreat after the breakout above $1,000 followed by a strong rebound from $1,000 is a very bullish development. This confirms the higher long term target near $1,300.
Gold has a way of engaging emotions and blinding clear analysis. There are two important caveats in this analysis.
The first is the dip below the long term uptrend line in November 2008. Is it valid to ignore this dip and place the uptrend line as shown in the chart? In a broad sense, the answer is, yes. In the period 2005 to the current date, this trend line has provided support for the vast majority of the time. We can use it as a provisional support level for the future. However, its power as support is demised by the November 2008 dip. This also reduces the power of the up sloping triangle pattern.
The second is the development of triangle patterns, and they take time based on weekly charts. The intersection point of the upsloping trend line and the resistance level -– the apex of the triangle –- occurs in October 2010. This suggests traders should not get too excited about the push towards $1,000. This could develop into a triple top pattern with price pulling back and retesting the long term trend line. This pattern of behavior shows there is increasing probability of a break above $1,000. It does not provide a guide to when this will happen.
The third is the measurement of the triangle targets. This is useful for broad analysis of weekly charts. The base of the triangle develops from November 2008 to February 2009. This is around $180 in height. This is the target projection figure that is used to estimate the breakout target above $1,000.
Usually when psychological levels are broken the market develops a very strong new trend momentum. Many investors are buying gold because they believe there is a high probability the market will be successful in moving above $1,000 resistance. The pattern of price behavior suggests there will be more retreat and rebound activity before a successful resistance level breakout develops.
The most important feature of the gold price chart is the way it adds fizz to gold stocks. Traders do not focus on the 18 percent return from a gold breakout. They focus on the acceleration of price in gold producers, gold miners and gold explorers. The lower, speculative end of the gold market has already delivered returns of 30 to 60 percent. A move in the gold price above $1,000 will boost those stock returns into triple digits. This is the true location of the golden triangle.
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