As we discussed in Tuesday’s MarketMinute, a symmetrical triangle has emerged in the spot gold market since the last probe above $1,000 back in February. As the apex of the triangle is approached, an eventual breakout becomes more and more imminent.

The following is a definition of the symmetrical triangle from Investopedia:

A chart pattern used in technical analysis that is easily recognized by the distinct shape created by two converging trendlines. The pattern is identified by drawing two trendlines that connect a series of sequentially lower peaks and a series of sequentially higher troughs. Both trendlines act as barriers that prevent the price from heading higher or lower, but once the price breaches one of these levels, a sharp movement often follows.

This pattern is also frequently referred to as a coil. The market builds up energy — like a spring being compressed — as it coils in an increasingly narrow range. Breakouts can often-times be dramatic.

The last time we had such a nicely formed triangle in the gold market was during the 2006/2007 consolidative period. When the breakout eventually came, it resulted in a 50% gain (more than $300) to new all-time highs at $1032.20.

In fact, if you look back over the last several years there have been a series of triangle consolidative patterns, which have resulted in successively higher prices.

A couple things I’ve learned over my many years as a technical analyst: Breakouts are more likely to come in the direction of the dominant trend, and the dominant trend in gold remains bullish.

Initial objectives are derived by measuring the base of the triangle and projecting from the point of the breakout. The base of the current developing coil is a big one, just like the one before it.

Analysis and commentary by Peter A. Grant, Senior Metals Analyst – USAGOLD – Centennial Precious Metals, Inc.

If you would like this, and other news and analysis of this nature, to be sent to your email inbox directly via our NewsGroup, you can join here.

[see News & Views main page...]