Gold (XAU/USD) Price Forecast: Bounce Potential From Key Support Levels

Short-Term Vulnerability

Gold dipped to a seven-day low $4,842 on Tuesday, leaving it vulnerable to further downside. A closing price below the low of the prior six days at $4,879 would confirm the short-term bearish implications, as support near the 20-day average, now at $4,996, would have failed. Sellers remain in charge at writing, with trading continuing in the lower third of the day’s range.

Support Level and Bounce Potential

Nonetheless, if gold can remain above the lower swing high at $4,655 (C), it remains open to a continuation of the bounce from the $4,402 corrective low of two weeks ago. Long-term support near the 50-day average is confirmed by the top of a rising trend channel. An upside breakout of the channel was successful in December. The pullback was the first to test the top of the channel as support since it was exceeded, and the response to date is bullish for the long-term trend.

Key dynamic support is therefore near the 50-day average, now at $4,657 and rising. This makes it likely to represent a higher support area level than the swing low at $4,655. With a failure of support at the 20-day average, the 50-day average becomes the next downside target.

Upside Targets and Fibonacci Levels

The recent bullish retracement that followed the sharp bearish correction after the January new record high of $5,598, shows the potential for higher prices. That is, if the higher swing low is retained. Initially, the recent rally hit a high of $5,119 before weakening. That advance almost competed a 61.8% Fibonacci retracement at $5,141 during the advance.

If gold can find support prior to the higher swing low, then there is a chance to reach the next higher target, which is at the 78.6% Fibonacci retracement at $5,345. This is due to the developing price structure and because that target is also defined by a 100% projection of a rising ABCD pattern. Since the two targets converge, the price zone has the potential of acting like a magnet to pull the price towards it.

Near-Term Consolidation

In the meantime, further consolidation above support at the 50-day average and below resistance at the 20-day average, may continue to dominate short-term price action.

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