Gold Price Forecast: Will the Rally Continue?

Gold rallied to a new trend high of 2,397 on Thursday before encountering resistance and pulling back intraday. At the time of this writing gold is on track to complete the day with a narrow range, reflecting a pause in the advance. Resistance was seen at the 78.6% Fibonacci retracement and further confirmed by a top rising trend channel line that marked the same price. Support for the day was at 2,371, right at the 61.8% Fibonacci retracement zone (prior resistance becomes support).

Trendlines Indicate Higher Prices for Gold

Of note is the relationship of the price of gold with two trendlines. The more significant line is the rising line connecting the recent May 3 swing low, as it covers a longer time frame than the second line. If gold stays above that line, it can be anticipated to continue to strengthen. Also, gold rose above the downtrend line starting from the April 12 record high of 2,431 yesterday, and it exceeded the prior trend high at 2,378 as well. Wednesday’s close was above both the line and prior trend high thereby confirming strength.

Second Breakout of Trend Channel in Process

Moreover, yesterday’s advance ended clearly above the longer top rising channel line, triggering a second bullish breakout from the parallel trend channel. Will the second breakout lead to upside follow through? Certainly, it is starting to look that way. In addition to the trendlines noted above, the purple 20-Day MA is critical support if a retracement begins. It happens to match the price represented by the rising trendline today at 2,334.

Breakout Above 2,397 Triggers Bullish Continuation

A decisive rally above today’s high of 2,397 provides a bullish signal. If this occurs the record high of 2,431 is the next target. Gold is likely to then continue to advance into new record high territory. The first new high target is around 2,461/2,462, marked by the confluence of two Fibonacci levels. It includes a 161.8% extension at of the retracement from the decline that began off the August 2011 trend high of 1,921. Therefore, it is potentially a significant price level as it covers a long period of time.

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