Gold Forecast: Bull flag breakout confirmed, is $1300 on the cards?

The heightened geopolitical tensions and the resulting risk aversion, coupled with dovish Fed speak pushed Gold to a high of $1278.76 on Thursday. The metal remains bid in the European session today, currently trading at $1280; the highest level since June 14. 

Technicals - Bull flag breakout

4-hour chart

  • A solid [supported by strong volumes] bull flag breakout - a bullish continuation pattern has opened doors for a rally to $1300. 
  • The previous two cyclical highs fell just short of the key psychological level. 
  • ‘Third time is the charm’… the level could be scaled this time; especially if tomorrow’s US CPI number misses estimates. 

Daily chart - higher lows, higher highs established

  • Yesterday’s close above $1274.14 [Aug 1 2017] has confirmed a textbook higher lows and higher highs formation. 
  • The RSI, though very close to being overbought, still shows potential for rally. 
  • The only factor that warrants caution is - we are yet to see a convincing breach of the downtrend line on the volume chart. Nevertheless, bulls may take heart from the fact that yesterday’s breakout was accompanied by a spike in the volumes. 


  • Technicals do point to a potential for a rally well above the $1300 mark. However, a lot will also depend on the US CPI due for release tomorrow at 12:30 GMT and the inflation expectations.   
  • The US dollar could rally across the board and gold may revisit the area around $1260 if the July core CPI prints above the consensus estimate of 0.2% y/y. 

Gold - bull trap?

  • The chart above shows gold prices respond negatively to rising inflation expectations as represented by the US 10-year breakeven inflation rate [difference between the yield on the US 10-yr Treasury inflation protected securities and the yield on the nominal 10-year Treasury]. 
  • This is because the rising inflation expectations means the Fed would not hesitate to continue with the policy normalization process. Thus, higher inflation expectations mean a strong dollar and weak gold. 
  • It is only during the bouts of risk aversion that gold ignores rising inflation expectations…. the likes of which we are seeing now. 

To conclude- 

  • The bull flag breakout could turn out to be a trap if the Geopolitical tensions ease. The other factor - inflation expectations - is working against gold. 
  • The metal may extend the rally to $1300-$1320 levels if the US CPI misses estimates. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.