Gold's going sideways under a bull flag, ready for a run or fall
That rise perhaps was driven by the desire of investors for a safe harbour as the rest of economic life went through its earthquakes during that period. In one spike in mid-2011 it reached $US1875, actually breaking through the top of the upward trend line it had been following.
It quickly re-entered the trend band. But with increased price volatility, gold finally broke out of the up trend in April 2012, the point marked with a red circle on the chart. Since the trend breakdown, gold has been consolidating in a sideways pattern that moves slightly lower with each swing. This formation is known as a "bull flag".
Despite the lower swings in this chart, a bull flag is actually seen as a positive set-up. Technical analysts read it as showing that while some investors might be selling to lock in profits after the breakdown in the up trend; there are fresh buyers willing to enter the market and support it at higher levels, meaning it doesn't retrace the up trend.
The period since the trend breakdown is essentially a correction, Clement says.
A correction can come in two ways: as a temporary price fall or "through time, where the market absorbs its gains by moving sideways at the new elevated levels. Gold is clearly in the latter category," he says.
Clement observes that in a bull flag situation "once the distribution from the sellers to buyers has taken place, the buyers will typically then move the market to fresh highs".
Gold is again testing support at the lower bull flag trend line at $US1560. If this level holds, Clement expects the market to make a move back to its resistance level at $US1770. "And with commodities across the board looking bullish, there's every chance we could see a breakout from the bull flag pattern and a move to new highs if and when it reaches that resistance level," he says.
On the downside there is a clear make or break point in the support line at $US1560.
If gold spends more than a couple of weeks below that level, Clement says, that would be a sign that the market wants to move lower from there.
Investors can get exposure to gold through futures, options, exchange-traded funds or contracts for difference and buying the metal itself. A rise in price should push up the prices of gold producers, especially if they have not hedged output prices.
Frequently Asked Questions about this Article…
A bull flag is a technical chart pattern where prices consolidate sideways or slightly lower after a strong uptrend. For gold, it suggests the market is absorbing gains while fresh buyers step in, and technical analysts view it as a potentially positive setup that can lead to another upward move once distribution from sellers to buyers is complete.
The article notes gold fell to about US$700 an ounce in October 2008 during the global financial crisis, then rallied into 2012 with a mid-2011 spike to roughly US$1,875. In April 2012 gold broke the earlier uptrend and has since been consolidating in a sideways bull flag pattern.
The article identifies US$1,560 an ounce as the lower bull-flag support line (a make-or-break point) and US$1,770 an ounce as the resistance level. If support at US$1,560 holds, the market could move back toward US$1,770; more than a couple of weeks below US$1,560 would suggest a push lower.
According to the article, the period since the uptrend breakdown is essentially a correction. The piece explains a correction can be a temporary price fall or a sideways absorption of gains through time; gold is described as being in the latter—moving sideways at elevated levels rather than plunging.
The article explains that once sellers have distributed to buyers in a bull flag, buyers typically push the market to fresh highs. The analyst cited suggests there’s a chance of a breakout to new highs—particularly if gold reaches the US$1,770 resistance and broader commodities remain bullish.
The article states that if gold spends more than a couple of weeks below the US$1,560 support level, it would be a sign the market wants to move lower from there—meaning the bull-flag setup could fail and further downside might follow.
Investors can access gold through several routes mentioned in the article: futures, options, exchange-traded funds (ETFs), contracts for difference (CFDs), or by buying the physical metal itself. Each option has different cost, liquidity and risk characteristics.
The article notes that a rise in the gold price should push up the share prices of gold producers—especially those that have not hedged their output prices. Producers that haven’t hedged benefit more directly from higher spot prices, while hedged producers may have some of their future production locked in at lower prices.
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