Gold (XAU/USD) Price Forecast: Breakout Retest Sets Stage for Next Advance

Failed Breakdown Sparks Bullish Reversal Attempt

Gold initially weakened to a five-day low of $3,996 on Wednesday, before buyers stepped in and drove the price higher and above Tuesday’s high of $4,081. A daily high of $4,086 was established at the time of writing, resulting in a bullish outside day. It is considered bullish because gold will show a gain for the session after a failed daily breakdown from a key retracement support zone. Early session weakness completed a 78.6% Fibonacci retracement of the prior advance at $4,004 and a 127.2% extension of the prior advance that is clearer on the enclosed 4-hour intraday chart.

Technical Breakout Improves Reversal Potential

The 4-hour chart provides a closer view of the potential developing bullish trend reversal. It shows a recent upside breakout above a falling trendline near the confluence of both the 50-period and 100-period moving averages. The alignment of those indicators at the breakout zone strengthens the significance of the breakout and therefore increases its potential success.

A pullback to test prior resistance areas as support is common following key breakouts and once that pullback completes, the dominant trend should be ready to reassert itself. For gold that would be the potential developing uptrend that began from the recent higher swing low of $3,959 from mid-July. A swing high for that trend was established recently at $4,166, leading the current pullback that successfully tested support near the downtrend line.

Key Levels Determine Whether Buyers Regain Control

Wednesday’s low of $3,996 is now a key support level, as a drop below it will weaken the chances for the trend reversal to succeed. Recent signals are still early and require further confirming evidence of improving demand. However, since the first pullback after an upside breakout of a falling trendline may have just completed, the bullish case for gold suggests that Wednesday’s low could be the lowest traded price before a sustained advance.

The next confirmation of strength would come on a rally above the interim swing high of $4,116, followed by the $4,166 level noted above. A more important resistance level, however, remains at the lower swing high of $4,203. If it can regain that level, then it may have a chance to continue higher. Otherwise, resistance is anticipated to hold near that zone, limiting the upside potential for now.

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