Gold (XAU/USD) Price Forecast: At a Crossroads: Breakdown or Bullish Rebound Ahead

Further weakness in gold extended to a low of $3,324 on Friday, before there were signs of support. The decline stopped right at the rising trendline at the bottom of a bullish pennant formation. It remains to be seen whether that continues to hold or not. But for now, gold is at a key decision point for investors as a breakdown rather than a bullish reversal, would indicate a possible failure of the bull pennant and a weakening of the near-term uptrend defined largely by support of the 50-Day MA.

Bearish Reaction to Failed Breakout

A false breakout of the pennant was triggered on Tuesday, but it failed to follow through, leading to the current pullback. During Friday’s drop the confluence of the 20-Day MA and 50-Day MA at $3,343, failed as support. Gold reached a low for the day of $3,325, at the time of this writing. That provided another test of support around the lower boundary line of the pennant. It leaves gold in a critical position as a drop below the lower line is bearish and may lead to a deeper pullback. A small interim swing low at $3,310 is the next lower potential support area of note as a drop below it will show weakness and a reversal of the short-term uptrend, as a higher swing low will be broken.

Price Range Tightens

The recent convergence of the two trendlines suggests that volatility could spike with the next week as gold is getting closer to the apex of the pennant triangle. A bullish reversal from today’s lows will be indicated on a rally above today’s high of $3,373. That would put gold back above both moving averages as well. Although a rally above this week’s high of $3,439 will trigger another pennant breakout attempt, a rise above the prior swing high at $3,451 points to stronger conviction. Then, the record high of $3,500 will need to be surpassed for a new record high.

Upside Targets

There are more than a few potential new high targets if the pennant triggers again but two stand out. The first is $3,578, which completes the initial 100% projection for a rising ABCD pattern (purple). A somewhat larger ABCD pattern is shown as measured moves on the chart that match on a percentage basis. They point to a potential upside target around $3,689.

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