Gold has been in a downtrend since September last year when it reached an all-time high of $1,923.70 an ounce, however this bearish trend could be about to reverse. The yellow metal is forming what’s known as a Triple Bottom chart pattern which typically indicates a reversal of the prior trend.
The Triple Bottom Chart Pattern
This type of chart pattern is used in technical analysis to predict the reversal of a prolonged downtrend. The pattern is identified when the price of an asset creates three troughs at roughly the same price level (circled) and then changes direction establishing a new uptrend. The price then typically breaks through the previous resistance high (upper yellow band).
A 1 Year Chart Of Gold
Chart courtesy of Stockcharts.com
If gold finds support at around $1,530 (lower yellow band) and then bounces higher the move will complete the third trough and would therefore complete the Triple Bottom chart pattern. This bounce would indicate that buying interest (demand) is outweighing selling interest (supply) and that the trend is in the process of reversing.
The Commodity Channel Index (CCI), which is very good at identifying extreme price conditions, is also showing that gold is extremely oversold (blue circles) just as it was at the two previous troughs.
The Triple Bottom chart pattern is considered to be a very reliable indication that the downtrend is about to reverse and that a new uptrend is about to begin. If this scenario plays out, traders will get ready to enter long positions once the price breaks above the previous area of resistance, something which could quickly propel gold to a new all-time high.