The technical picture for gold indicates that a strong move is likely in the near future. Gold has been trading in a triangle pattern making higher lows and lower highs. In simple terms imagine a sideways V (>) with the market currently approaching the end of the shape. A breakout of this pattern is likely to produce a strong move in either direction. The direction of the breakout is not clear however on a pure technical basis a breakout to the downside is favoured. The reason being, a triangle is considered a consolidation pattern whereby the market usually breaks out in the direction of the current trend which in this case is down. This is not a hard and fast rule but because it occurs with a larger frequency, technically it is the more likely scenario. The strong support level that the market would need to break to confirm the break down is $1268 and the resistance level is $1330. These are the levels that should be monitored closely.
Last week I noted that “As long as silver holds above the $19 level a test of the $20.08 – $20.50 range is on the cards.” So it came as no surprise that the market managed to trade higher after holding the $19 level yet again. The move higher however has so far fallen short of the target above, having only reached a high of $19.82 so far. There is still plenty of room for silver to reach these higher levels, however, there are also enough technical indications that silver may have topped on the last move higher. The key level to watch is the $19 on the downside. Should silver break this level with strong volume then a sharp move lower is likely to follow. Without trying to complicate this any further the nature of a break of $19 level is worth noting. If silver breaks $19 and drops towards $18.20/$18.60 in a corrective manner then that may be all the market gets on the downside and opens the door for a move towards the $23-$25 level again. On the upside a break above the $20.50 level is needed if the market is going to have any immediate bullish potential.
Simply, the metals consolidation period looks like it is coming to an end soon. The direction is still not clear, however, should the markets trade through the key levels cited above, a strong move is likely to take place. As a trader, take caution should the market break in the opposite direction to your position as the potential move has the set up to be explosive.