Gold Price Forecast: Holds Support, Bearish Breakdown Risk Intensifies

Gold remained within a six-day consolidation range on Wednesday following a drop to a five-day low of $3,267 earlier in the session. The day’s low was a successful test of support at a top trend channel line. It followed a minor drop below the lower boundary line of a developing pennant consolidation pattern. Since the range of the pennant is shrinking as the apex of the triangle is approached, a decisive breakout through the top or bottom boundary line will happen within a day or two. There is also the possibility that the potentially bearish continuation pattern evolves into a larger or different pattern.

Bearish Signs Remain

The pennant pattern follows a one-day bearish reversal of a shooting start candlestick pattern that formed on April 22 following a new record high of $3,500. Although the new high day was followed by only one day down with a lower daily high and a lower daily low, the high followed signs that the price of gold was extended and due for a pullback of some degree. During the recent advance the price of gold advanced by as much as $543 or 18.4% in only 10 days. That is an aggressive move and difficult to sustain. The relative strength index (RSI) has since turned down from being overbought and the potential bearish pennant pattern has formed, leaving gold vulnerable to a bearish continuation.

Two Bearish Patterns

Given the minor false breakdown from the pennant pattern today, the low of $3,260 that was established last Wednesday, should be a more reliable indicator. The larger time frame weekly chart also provides a pattern to be considered. Last week a potentially bearish weekly shooting start candle formed, with a lower for the week also at $3,260. Therefore, a drop below that price level would signal a weekly bearish reversal and breakdown from the bear pennant. And it would also put gold back into the range of a rising trend channel bounded by blue trendlines.

61.8% Fibonacci Retracement Looks Likely

Given the potential for a spike in bearish momentum following a breakdown, potential support around the 20-Day MA and 50% retracement seems unlikely to hold as support. Subsequently, the $3,168 price area becomes a target. However, if it fails to hold as support the lower blue channel line becomes a target along with the 78.6% Fibonacci retracement and 50-Day MA at $3,075. Keep in mind that the 50-Day line is rising and therefore its price will change.

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