Gold (XAU/USD) Price Forecast: Bear Flag Signals Further Weakness

Bear Flag Formation and Early Downside Action

A small bear flag pattern continues to form in the daily chart for spot gold. On Thursday, gold fell to a three-day low of $5,105, stopping near the 20-day moving average. It is poised to continue lower and test the lower flag boundary line after being rejected from the upper boundary line over the prior two days. But the key driver of expectations is the sharp break of a rising bearish wedge formation last Tuesday. That breakdown resulted in a sharp drop to $4,996. That level marked an eight-day low and the bottom of the flag formation. It also represents key near-term support.

Pattern Triggers and Potential Support Zone

The flag pattern triggers on a drop below $4,996, with an early warning signal occurring below $5,015. A measuring objective from the pattern suggests a potential target of $4,592. It is interesting to note that another downside target is near that level. That level corresponds to the rising 100-day moving average at $4,552. In addition, the rising wedge suggests that the price zone around the recent swing low of $4,402 may be tested. Together, these indicators identify a potential support zone from $4,592 to $4,402.

Higher Initial Downside Targets

There are also higher initial downside targets following a bear flag trigger. But since there are two bearish patterns that will be following through on a drop below $4,996, bearish momentum may be strong enough to fall right through them. The first is the 50-day moving average at $4,930, and the second is the recent higher swing low at $4,842.

Key Downside Target and Trend Context

The key downside target is defined by the rising 100-day moving average. It has done a good job of representing trend support since it was reclaimed in October 2023. Support is expected at or above the 100-day average for the current bearish correction.

This level is particularly important because it also reinforces the broader bullish trend structure established following the breakout of a rising trend channel and the subsequent successful test of support at the top of that channel. Note the increasing slope of the 100-day average, which further highlights the strength of the longer-term uptrend despite the current pullback discussed at the beginning of this analysis.