Bearish Sentiment Builds on Wedge Breakdown
Bearish sentiment in spot gold has been building. Following the breakdown of a rising bearish wedge last Tuesday, gold consolidated into a small bear flag pattern. During the flag consolidation phase, support has been tested near the 20-day moving average. A bearish signal for the flag is first indicated below $5,015 and is confirmed below the bottom of the flag at $4,996. That low from last Tuesday has not been broken since them. Price action following that low was contained within the range of that wedge breakout day, demonstrating that initial bearish momentum remains capped until a decisive break occurs.
Pressure Near 50-Day Average
Although there is possible support near the 50-day moving average if the flag triggers, bearish momentum may be strong enough to push below that trend indicator. It is currently close to price, and it will be facing selling pressure driven by two bearish patterns. This suggests that the lower target zone could be reached, linking the early consolidation to the potential downside noted later.
Dynamic Support from 100-Day and 50-Day Averages
The 100-day moving average, at $4,562 and rising, is the lower end of potential support, as currently assessed. Since the 100-day average was reclaimed in October 2023, it has done a good job of defining an area of dynamic support for the trend. The 50-day average has done the same but over a shorter period. It was last reclaimed in August, which was followed by a sharp bullish continuation of the trend into the record high of $5,598.
Significance of Trend Channel Interaction
The 100-day average dynamic support line takes on additional meaning, since it is close to rising above the top of a bullish trend channel. That would confirm the rising slope of the bull trend if it holds as support. It takes on greater significance if it is above the top of the channel when hit by price.
Broader Support Zone Between $4,550 and $4,402
There is also a potential support zone identified from around $4,550 to the recent corrective low of $4,402. In between the flag and price range are two trendlines that might show signs of support on the way down. The reaction around each will be watched closely for insights into supply and demand, tying back to the initial observation of bearish sentiment and consolidation patterns.
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