- Summary:
- Gold prices are soaring following a few days of consolidation and break to a rectangle pattern. The move higher in prices is due to weak economic data.
Today, Gold prices are soaring following a few days of consolidation and break to a rectangle pattern. Between August 7 and August 12 gold prices were trading sideways between $1487 and $1510 and formed a rectangle with a height of 23 dollars. The price has now reached the target of the triangle pattern.
As the August 12 trading session was about to end, Gold prices breached the upper end of the rectangle and that set bullish traders in motion. The price has now reached the price target, but I suspect we might see further gains as the prices seek out the flag pattern target of $1545 that I have been highlighting in the last few weeks. Also, the price has a tendency to seek itself to round numbers such as $1550 so I think we could still see higher prices ahead.
In the short-term, I think traders will hesitate to buy gold at current levels, as the price is short-term overbought, and the risk-reward ratio is not good for fresh positions. Instead, I suspect traders might see corrections to the $1510 breakout point and the upper end of the rectangle mentioned above, before considering to buy gold again. It is, however, important to understand that even if the market might be slightly overbought it might not stop traders that are short to buy back their bearish positions and this could send prices higher.
The main reason for gold prices soaring is the declines in the global stock markets and a general flight to safety. Earlier today, we reported that the Germany ZEW Economic Sentiment failed to meet expectations and declined to -44.1 vs. the -28.5 expected, also, the EU Economic Sentiment slipped to -43.6, and worse that then -21.7 projected.
The sharp drop in the ZEW index warns that the German economy could enter a recession, and that can explain why gold remains supported. German annual GDP was 0.7% in the first quarter vs. 2.1% in the same period last year. However, quarterly GDP growth has been patchy since summer last year.
As for gold prices, they will remain short-term bullish above the $1487.