Gold Price Prediction: Is a Head and Shoulders Possible?

Summary:

Gold price looks vulnerable as a possible head and shoulders pattern is likely. The $1,880 level is key for the downside, ahead of the Core PCE data.

The gold price has reached its highest level since late January, and the market participants are not shy to express their views of a new all-time high. For sure, gold has reacted to fears of rising inflation in the United States.

Helped by a weak US dollar, the price of gold surged from $1,675 all the way to $1,900. Inflation in the United States rose by the most since 1981, fueling fears of rising prices during the summer and beyond. Because gold is the traditional hedge against inflation, one should not be surprised to see even more upside.

However, the technical picture calls for caution. While it is too early to talk about a head and shoulders pattern, a move back to the $1,880 area will point to a possible reversal.

Tomorrow’s Core PCE data is key. The Personal Consumption Expenditure in the United States is the Fed’s favored way of measuring inflation, and a higher print should further fuel the price of gold. Yet, higher inflation does not necessarily mean a lower US dollar, as we can see by checking historical data.

Gold Price Technical Analysis

While above $1,880, the price of gold remains bullish. However, a move below may trigger some more weakness. Bears may want to wait for a close below the level before going short with a stop at the highs and a take-profit set by using a 1:2 risk-reward ratio.