As we have seen so many times, the nature of a chart formation is revealed at key moments when the chart action approaches a critical decision point, especially after a sustained move higher or lower.
In this case gold is struggling hard to break a multi-year bear market and form a successful bottom off the big 1080 support.
The gold bulls can hope for a retracement that finds support fairly quickly, and mounts another assault at making a higher high than the last failed breakout attempt that was stopped at 1230.
The gold bears are quite confident, to the point of overconfidence in their ability to smash the price lower with an avalanche of paper sells in quiet hours after two years of having their way with this market.
Even while they have been setting themselves up for an eventual confrontation with the physical consequences of their actions. By now this should be a very familiar theme for a willful generation on any number of fronts.
A bullish interpretation can hold with declines even down to the bottom of a new bullish uptrending channel.
A break to the downside of 1120 negates this formation.
So in summary there are three general outcomes.
The first is a shallow retracement and a breakout that takes some greater momentum higher towards the 1300 level and makes the bottom with some decisiveness.
The second is a deeper retracement, with support found somewhere above 1120, with another assault mounted for a breakout higher from there.
And lastly, we must keep an open mind about a possible breakdown below 1120 setting up a retest of support, perhaps down towards 1080, or the establishment of a trading range.
I am not applying the normal probability range to this formation at this time because of the obvious price manipulation that has been occurring in the paper gold markets, which are being traded more like currency crosses and less like a commodity with a real basis of physical supply and demand underlying the transactions.
That reality will assert itself at some point. We cannot presume to know exactly when.
