Thursday was one of the most disorienting and volatile days in global markets in recent memory and if we know anything about traders, it’s that they hate not knowing what’s happening. I already covered the SNB’s shocking decision to drop its peg on the EUR/CHF, but one of the more obvious side effects has been a rally in safe-haven Gold. The yellow metal has served as a store of value for millennia and as my colleague Fawad Razaqzada succinctly summarized Thursday, “[the SNB’s decision] took everyone by surprise, [and] the initial response from the market was obvious: rush to safety. In this regard, gold was the obvious choice...”
But beyond the supportive fundamental backdrop, gold has also seen a breakout from a big inverted Head-and-Shoulders pattern. For the uninitiated, this classic price-action pattern shows a shift from a downtrend (lower lows and lower highs) to an uptrend (higher highs and higher lows) and is typically seen at major bottoms in the chart. This week’s conclusive break above the “neckline” confirms the pattern and suggests that we may see further strength in the yellow metal over the coming weeks -- a view supported by the bullish trend in the MACD indicator.
As we go to press, gold is pressing against the 50% Fibonacci retracement of last year’s drop at 1261 and with the RSI indicator near overbought territory, a near-term consolidation or pullback is definitely possible. That said, the measured-move target of the inverted H&S pattern comes in all the way up at $1340, so gold rallies are still favored as we move through the rest of the Q1 as long as the yellow metal can hold above its 200-day MA at $1250.
Source: FOREX.com
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