Dollar gold price rally to resume after ebbing

THE DOLLAR gold price has been rallying since December last year. While it is too early to say if this is the start of a major trend, its chart is showing at least one higher target. Gold ($): Higher target Recommendation: Traders buy on a pullback. Trend: Short term up, but overbought. Medium term turning up. (Daily)

The gold price has formed an inverse head and shoulders pattern in recent months (as labelled). Last week it convincingly broke out above line 1 (the neckline) to confirm this bullish pattern.

It is pointing to a minimum target of $1 360 an ounce in the weeks ahead, measured as the height of the inverse head and shoulders projected up. (This target will coincide with line 2 resistance from 2012).

Right now, however, its shortterm stochastic oscillator (on top) is overbought, so a minor pullback is likely before it heads higher.

Traders who did not buy on the recent break-out should wait for a two- to three-day pullback to $1 295 to buy.

Place your initial stop-loss then as a closing price below $1 270 (spot price). From $1 338 take partial profits to reduce your risk. Tighten your stop once it trades above $1 350.

Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, please go to www.themarket.co.za.