Gold (XAU/USD) Price Forecast: Breakout Fails, but Setup Remains Bullish

Gold attempted to break higher on Wednesday, but it looks like a failed attempt, so far. A breakout above the recent minor swing high at $3,375 triggered earlier in today’s session. That put gold at a 16-day high and triggered a potential continuation of the short-term uptrend that began from the most recent swing low at 3,247 (C).

At the time of this writing, gold has retreated from the highs of the day and is trading in the lower half of the day’s range. Wednesday’s session will end shortly, so it looks likely that gold will close in a relatively week position for the day. That would mean that the breakout failed until there is another rally above $33.75 that sustains.

Bulls Remain in Charge

Nonetheless, the bulls remain in charge but within a pennant consolidation pattern. This week’s minor pullback reached a low of $3,320, which was a successful test of support around the 50-Day MA and a short downtrend line. Today was the second day in a row that support was retained. Whether there is a slightly deeper pullback before a new rally attempt remains to be seen.

But an overall bullish outlook would not start to change until there was a decline below an interim swing low at $2,283. And the lower boundary line for a bullish pennant pattern may be significant as a drop below it gives a bearish signal and the possibility of a failure of the bull pennant.

Lower Volatility Leads to Higher Volatility

Volatility in gold will likely remain muted until there is a breakout of the pennant consolidation range. Look at the monthly chart (not shown) for a clearer view of the contraction in volatility over the past few months. These areas of trend, where the trading range contracts over time, can often lead to fast-moving markets. Gold’s monthly chart is interesting as May through June (to date) are inside months relative to April and July is inside the range of June. A pennant breakout triggers above the top pattern boundary line, but a more convincing signal occurs above the swing high at $3,451 (B).

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