After a surprisingly strong and especially fast rally from an oversold bottom mid of December at 1,236 USD up to 1,365 USD within less than seven weeks and the recent pullback down to 1,305 USD gold has been rushing back up towards 1,360 USD over the last couple of days. While enthusiasm among the gold bugs has certainly increased, the question remains whether it is really justified and whether gold indeed will be able to break out.

1. Gold Weekly Chart

Looking at the weekly chart gold has reached the important resistance line again and is trying to break out. If we assume that the last four and a half years have been some kind of a bottoming process and that gold has been moving within an ascending triangle over the last two years a breakout above 1,360 USD on a weekly basis would certainly be a pretty bullish signal. In that case, using the height of the triangle would give us a theoretical target around 1,630 – 1,650 USD. Of course on the way to this distant number gold needs to clear the massive resistance zone around 1,500 – 1,530 USD first which won’t be easy at all!

Unfortunately, on the weekly chart, we find the slow stochastic oscillator close to its overbought zone which definitely raises doubts whether gold indeed is ready to break out now. Actually just judging on this oscillator gold would probably need more consolidation between 1,280 and 1,350 until early summer before the bulls have enough power to boost sustainably through this long-term resistance.

As well the ascending triangle might simply demand some more consolidation as the formation doesn’t really look in its final stage. Gold could easily swing between 1,250 USD and 1,350 USD without disturbing the improving picture.

Another resistance comes in form of the weekly Bollinger Band which currently sits at 1,363 USD. Generally, 95% of the time prices are moving within these two bands. Therefore gold would really need to deliver a feat here to push the Bollinger Band higher. With the weekly chart being close to overbought this might be challenging.