Gold has been volatile in recent weeks recording all-time highs at some point and then losing almost 4.7% within one day. Notably, the precious metal has been trading within a pennant triangle consolidation since it recorded its August 6 all-time high at $2,074 per ounce in the spot market.
The resolution to that pattern will expectedly set the stage for gold in the next 1-3 months. For now, the gold market bias remains upward.
Pennant Triangle
Pennant triangle formations feature is a series of lower peaks that converge with higher lows. Triangles normally represent pauses amidst a longer-term trend. Most of the triangle patterns resolve in the directional bias of the earlier trend leading up to this pattern. In this scenario, the bias is upward.
Triangle Targets
To reach a target calculation for a pennant triangle, we can add the amplitude of the consolidation onto the apex point. Notably, gold’s pennant triangle has an amplitude of $212. It is measured from the peak of August 6 down to the low that was recorded on August 11.
In that case, calculations reach a target of $212 + $1,948 (apex) = $2,160. The target can be achieved within three weeks of a break of the upper declining trendline, which is presently located at $1,985 and declining by the day.
Stop Losses
On rare occasions, pennant triangle consolidations may fail to break in the bias formed by a preexisting trend. Gold should not witness a daily close below the lowest rising trendline to avoid this outcome. The lower rising trendline is currently formed at $1,920 and rising. Under no particular circumstance should gold close below the recent August 21 swing low of $1,915 for it to maintain the current bullish bias.
The Takeaway
Gold remains within a neutral pennant triangle consolidation. This pattern serves to work off excess enthusiasm that had developed in the previous advance. If the precious metal manages to break above the declining upper boundary of the consolidation currently at $1,985, it will target $2,160 over the coming weeks. Experts advise traders to set daily close stops at the lower rising boundary of the pattern to avoid steep losses in case gold plunges.
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