Gold (XAU/USD) Price Forecast: Bearish Bias Persists Below Key Average

Short-Term Resistance and Bearish Bias

A slight advance in the price of gold on Thursday to a high at $5,022, did little to alter its short-term bearish position. Resistance was seen for the third day at the 20-day average, confirming the bearish implications of a drop below the average recently. A narrow range day on Thursday shows buyers and sellers essentially equal, but at a key short-term resistance area. Since the 20-day average has failed as support, the 50-day average emerges as the next dynamic level. It is now at $4,688 and rising.

Potential Pullback and Key Dynamic Support

Once a pullback to test prior support as resistance complete, sellers may reassert control – at least for the short-term. A decline to the 50-day average would provide a more solid base to find support and attract buyers. But given the recent low volatility environment, a normal response from key price levels may not occur if consolidation continues. Nevertheless, the 50-day average is key dynamic support for the trend, as it has been since August.

 Volatility Compression After Sharp Decline

The price of gold dropped by $1,195, or 21.54%, from its high to low in just three days recently. After similar sharp moves, it is not uncommon to see a period of lower volatility, as the price range compresses. Both buyers and sellers lose interest and direction is in doubt. The 20-day average going right through the middle of a range formed after the February 2, is an example of this. Moving averages are trend indicators and, therefore, more reliable in trending markets. Although they can provide short term indications in a consolidating market, as seen with gold, but they are not as dependable as a pivot in trending markets.

Retracement Levels and Upside Potential

Gold retraced almost 61.8% of the large decline rally to $5,519. That is a normal retracement and not extreme. But it doesn’t preclude a continuation of the advance to higher targets. If the 61.8% Fibonacci retracement at $5,141 is recovered, then the next Fibonacci target at $5,345 moves into sight. Moreover, a 100% projection of a rising ABCD pattern also points to that price level. That is the top target for now for gold and the 50-day average provides a floor. Consolidation within that range may continue for weeks or months.