Gold (XAU/USD) Price Forecast: Bearish Wedge Breakdown Signals Key Support Tests

Early Weakness and Support Levels

Gold broke down from a bearish rising wedge earlier in the week, with a continuation of the drop likely setting up on Thursday. Initial support following the break was seen near the 20-day moving average, with Tuesday’s drop finding support at $4,996, now a key structural level. Since there has been only one leg down so far, a continuation to initial support levels looks likely before the bearish correction completes.

Thursday Price Action and 50-Day Support

On Thursday, gold established a lower daily high and lower low, at $5,195 and $5,051, respectively, putting it at risk of falling back below the 20-day average. That looks likely given the bearish wedge. It would put gold on course to test support near the rising 50-day average at $4,855. Since that indicator was last tested successfully as support during the sharp 21.4% decline to $4,402 recently, it should continue to mark dynamic trend support. If buyers can provide enough demand to counter such an aggressive decline, it seems likely to do so again. If not, that would signal weakening demand and increase the risk of a deeper correction.

Wedge Breakdown and Measured-Move Targets

The wedge pattern suggests that key initial support is at risk of failing. A measured-move objective from the rising wedge points to a potential target around $4,525. This doesn’t mean it will be reached, but it certainly could be. That would put gold back into the long-term rising channel. If it subsequently recaptures the top channel line, the long-term bullish structure of the channel would be retained, as well as the recent higher swing low at $4,402.

The wedge is well defined, and the market clearly signaled a breakdown of the pattern with a long-range candle breaking to a seven-day low. Even though there could still be more of a bounce before a bearish continuation, resistance is expected at the lower boundary line of the formation is tested from below.

Further Declines and Long-Term Channel Support

Consequently, there is another bearish measured move that suggests the possibility of breaking below the February low towards lower targets. Specifically, the current decline from the lower swing high of $5,419 points to a potential target near $4,224. That is very close to the center line of the rising channel. Just like the upper and lower boundary lines of the channel, the center line can also mark potential support or resistance. Since the 200-day average is now at $3,995 and rising, it may also confirm a support zone near the measured move target.