Falling Wedge Sets Up Gold for Potential Upside Breakout

Gold's massive drawdown over the past half-year has led to a significant change in investor sentiment and technicals. After reaching an extreme peak, gold suffered a 26.3% decline over 5.5 months into late July, exceeding historical standards even after its largest cyclical bull.

The prolonged selloff has created a falling-wedge chart pattern, which is typically bullish and signals a potential upside breakout. The converging trendlines of the wedge have coalesced into a classic formation, with upper resistance falling faster than lower support.

Gold's recent oversold technicals also confirm the bullishness of its falling wedge. At mid-July's latest low, gold closed at 88.8% of its baseline 200-day moving average (DMA), marking its most-oversold levels in 9.6 years.

The diminishing impact of news events such as the Iran conflict and Fed rate hike fears on gold prices is also a positive sign for the metal's future performance. As traders become accustomed to these factors, they are less likely to drive knee-jerk reactions.