Gold Price Forecast: Pulls Back After Breakout; Trend Still Intact

Gold fell on Thursday, reaching a three-day low of $3,298 as its tested support around the breakout level of a bull flag pattern. A breakout of the flag triggered on Monday and was confirmed that day with a daily close above the top boundary line of the pattern. Moreover, strength was further confirmed with a daily close above a minor swing high at $3,371 on Tuesday.

The breakout of the daily flag pattern also triggered a weekly breakout on a move above last week’s high of $3,353. For the weekly bull signal to confirm gold needs to close this week above last week’s high. For that to happen gold needs to find support and turn back up before the end of Friday. However, sellers remain in charge.

Sellers Dominate on Thursday

At the time of this writing, gold continues to trade near the lows of the day, currently at $3,298, and may go lower before the end of the session. Gold is testing an area of potential support marked by the 20-Day MA, now at $3,307, and the top of a rising trend channel line. A little lower is the intersection of two short trendlines and prior daily highs and lows from $3,275 to around $3,269.

For perspective, if gold fell below $3,275 today and stayed there it would be below the short-term uptrend line that helps define near term trend support. The 20-Day line is the other dynamic trend indicator, and it is showing signs of failure.

Quick Reclaim of 20-Day MA Could Flip Sentiment

A relatively quick recovery above the 20-Day MA could indicate the completion of the minor bearish retracement, while a drop below $3,275. It is the first pullback following a decisive breakout of a bull flag. The potential failure of the flag looks more likely if gold falls below $3,275. However, another possibility is that a bull wedge pattern takes priority over the flag. Both patterns are bullish but the accepted retracements following the breakout may need adjustment before there are signs of failure.

Bull Trend Remains Intact

So far, the short-term decline in the price of gold is normal and consistent with the integrity of an uptrend. Since the bull flag is a trend continuation pattern, it increases the chance that the bull trend in gold may continue above the record high of $3,500.

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