Gold Forecast: Bullish Momentum Targets $4,771–$4,780

Fresh High Puts $4,780 in View

Gold advanced to a new high of $4,697 for the current rally on Tuesday, thereby reaching its next upside target by completing a 50% retracement of the prior decline at $4,689. This followed a slightly lower target at $4,654 that was reached on Monday. That lower target marked the completion of a measured move from the sharp advance that recently preceded the formation of a bullish pennant pattern last week. The combination of the two levels may lead to a pullback, or an extension of the advance. With both targets now reached, price action around the next resistance zone will help determine whether the rally pauses or continues.

Long-Term Breakout Strengthens Bullish Case

A long-term bullish signal triggered last week on a concurrent breakout of the downtrend line and 200-day moving average. That average is now at $4,521 and it marks a key potential support zone. Once the 200-day moving average, which has recently represented resistance, switches to dynamic support, it would reinforce the potential for the bullish trend to proceed. Now that the first target zone has been reached, the next upside target zone comes into view. Given the long-term bullish signals from last week, the chance for gold to continue to strengthen in the short-term has improved.

The standard measuring objective for the pennant pattern is estimated at $4,780. That level is reinforced as a possible resistance zone by the confluence of the 50% retracement of the full prior downswing at $4,771 and a lower swing high at $4,774. Although there are higher potential targets, the $4,771-$4,780 area looks likely to complete the current aggressive advance. A move into that zone would also represent a natural area for the rally to encounter stronger selling pressure.

Momentum Remains in Control

Certainly, given signs of strong momentum, that higher potential target could be reached before a pullback of any degree. The series of higher daily highs and higher lows extended on Tuesday and a change in that pattern would be the first indication that momentum could be slowing. Tuesday’s higher daily low of $4,605 is key short-term support since a drop below it would change the daily trend pattern. Therefore, while the rally remains firmly bullish, $4,605 becomes the first level to watch for evidence that momentum is weakening, while $4,771-$4,780 remains the next major test for the advance.

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