Is the "Head and Shoulders" pattern in gold emerging? Three signals point to the same target

Technical formations, actual yields, support and resistance levels converge, making this rare triple alignment. If gold completes the right shoulder formation, the mid-range of $6,000 may no longer be just a dream...

On Tuesday, gold prices broke through the $4,400 per ounce consolidation zone and moved up to around $4,700 (plus or minus $100). This area overlaps with the support/resistance level formed by 1.65 times the 3-year moving average of gold prices. After this consolidation near the zone ends, the next upward move is expected to retest the $5,000 level, which is related to the 3.00 multiple of the medium-term cycle level for gold.

If this trend materializes, it will set the stage for a head and shoulders bottom pattern in gold. To confirm this pattern, we will observe whether gold consolidates sideways during the formation of the right shoulder and ultimately breaks above to reach a new all-time high. The projected upward target for this pattern is precisely in the mid-range of over $6,000, consistent with our independent analysis from last week. That analysis showed that the 10-year real yield dropping close to zero would support gold rising into the mid-$6,000 range. Additionally, two pairs of support/resistance levels that repeatedly appear are expected to converge in the same zone later in 2026.

In other words, three independent analyses all point to the mid-$6,000 range as the upward target for gold.

Gold options intrinsic value curve

Currently, gold is trading near $4,700 per ounce, which closely aligns with the "maximum pain" price of the May 2026 gold options contracts. This means that before options-related pressure potentially hits gold prices, there is still ample room for upward movement in the short term.

For example, even if gold rises to $5,000, the ΔIV (intrinsic value) of the May 2026 gold options contracts would only increase to about $400 million, which remains relatively low compared to recent historical levels.

Factors driving gold

As shown in Chart 8, since the establishment of the medium-term cycle low (ICL) in gold on March 23, the market has especially begun to price in higher future inflation expectations. This trend is expected to continue supporting gold prices.

Another common driver of gold is the price/yield of the 10-year U.S. Treasury. Although recent contributions of this factor to gold price increases have been modest, it no longer exerts downward pressure. On March 27, the 10-year U.S. Treasury price formed a local low at its support/resistance level of 3.05 times, then rebounded to the top of that zone.

Since the outbreak of war, the 10-year Treasury yield has risen from 3.97% to the latest 4.31%. Despite the yield increase, the circulation of the iShares 7-10 Year Treasury Bond ETF (IEF), a substitute for bonds, has continued to rise uninterrupted since the start of the year. This inflow may be driven by factors such as: first, expectations that yields will fall as the economy slows; second, funds moving out of declining stocks to traditional safe-haven assets in anticipation of an upcoming recession.

In contrast, the circulation of the iShares 20+ Year Treasury Bond ETF (TLT), a substitute for 30-year Treasuries, has been declining since reaching a local high in November 2024. This highlights that different segments of the yield curve are attracting different levels of demand. Market participants are clearly favoring the 10-year segment, as longer-term bonds may be viewed as offering better risk-adjusted returns amid uncertainty and inflation risks that are not high enough to offset the potential yields.

Silver

Similar to gold, silver prices have also returned to near their "maximum pain" level, currently around $74. Over the next few weeks, silver is expected to gradually rebound to just over $80. The ΔIV of the 2.6x gold/silver futures contracts supporting this support/resistance level is pushed up to about $120 million, which remains quite low. In other words, even if this target is reached, it is unlikely to generate significant options-related pressure on the price.