Gold (XAUUSD) Price Forecast: Slides Below Support, Bearish Signals Build

Gold failed to sustain a breakout of a bull flag pattern that triggered last week as it fell below and closed below last week’s low of $3,725 on Monday. That put gold lower into the flag formation, violating the integrity of the pattern and indicating a likely pattern failure. A failure would be confirmed on a drop below the low of the flag at $3,202. On Tuesday, gold consolidated and traded inside the range from Monday. Given the decline yesterday, a breakdown from an inside day would be a sign of weakening that would then be confirmed on a continuation below Monday’s low of $3,208.

Back Below 20-Day Moving Average

Yesterday’s closing price showed weakness as it was below the trendline and the 20-Day MA. That was the first daily close below the 20-Day MA since it was reclaimed on April 9. Of greater concern though is the potential for a lower swing high. A lower swing high shows underlying weakening, but its significance depends on whether it is confirmed by a drop below the bottom of the flag. That would create a lower swing low and likely declining ABCD pattern, as well the trigger for a double top.

Lines Provide Clues

It is interesting to note that straight up above thighs of yesterday and today is the convergence of three trend indicators. The 20-Day MA at $3,316 has joined an uptrend line and top trend channel line to mark potential resistance. This is a bearish indication as they came together on the on the breakdown day, but that is not the only reason.

There is also the potential for a failed upside breakout of a bull channel. If weakness does persist the 50-Day MA, now at $3,144, becomes a downside target. That line was successfully tested at the April swig lows and can be anticipated to do so again. A rally back above the 20-Day MA, followed by a daily close above it would be needed to begin to shift sentiment towards the bull side.

Weekly Heaviness

There are also signs on the weekly chart that reflect a potentially weakening bull trend. Two weeks ago, gold completed a potentially bearish shooting star candlestick pattern that triggered the following week. Last week’s attempted bullish reversal rally failed with a weekly close below the prior week’s high and in the lower half of the week’s trading range. But the potential bearish indications didn’t get clearer until this week. On Monday, gold fell below last week’s low and closed below it on Monday.

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