Are the Charts Signalling a Major Up Move for Gold?

Those of you that consider all technical analysis voodoo won't put much into this chart. However, some chart formations can be explained in terms of human action, including the reverse head and shoulders pattern seen in the current gold chart. This doesn't mean gold will absolutely break to the upside, but it does suggest that there will be strong buying if GLD breaks above 175.

J.C. Parets explains the technical activity behind the formation:

Is gold tracing out an inverse head and shoulders continuation pattern?

That’s really the big question for me in the yellow metal.

We know gold has been in a massive uptrend for over ten years. This isn’t a secret. Every pullback or consolidation over the past decade has been an opportunity to get on board. Is this current choppy action just another one of those? Or is it a more significant top?

At first glance, I don’t see anything toppy about the action. Nothing in the chart or price action is telling me that a major topping formation is under construction yet. What it does look like to me is just corrective, healthy action —at least for now.

Taking a look at the chart of $GLD (SPDR Gold Shares Trust), it appears that the right shoulder of this potential inverse head and shoulders pattern has been forming since running into neckline resistance at the end of February. The neckline is more subjective here and one can make the argument that it stands somewhere between 174-175. The left shoulder of this pattern was built throughout all of October and then the Head down around 150 in December.

The symmetry of this formation certainly increases the possibility of this in fact being the consolidation/continuation pattern described above. In other words, the left shoulder and potential right shoulder bottomed out around the same price. And the time that each low took to form is about the same as well.