Gold (XAU/USD) Price Forecast: Bullish Breakout Falters After Bearish Reversal Signal

Gold broke out of an 18-day consolidation zone on Monday, followed by an initial breakout of a bull pennant pattern on Tuesday. A pennant breakout triggered above the top boundary line of the triangle pattern and it was confirmed by a daily close above the line. However, a breakout above the most recent swing high of $3,451 will be needed to further confirm the bull breakout. A rise above the trendline provides a signal but not necessarily a reliable one.

That is evidenced today, Wednesday, as a brief new high of $3,439 was established before sellers took control and drove the price down to a low for the day of $3,381. That was below the $3,383 low from Tuesday. Therefore, a one-day bearish outside day will be formed for gold.

Non-Confirmation of Breakout

Today’s price action does not confirm the bull pennant breakout. It shows a potential failure. However, it may have just been an early signal and it will be followed by another attempt after a rest. Nonetheless, trading continues near the lows of the day currently and gold will close below the top trendline and possibly below yesterday’s low, which would be another sign of weakness. In either case, it looks like gold may trade within the pennant pattern for a bit longer before another bull breakout is attempted.

Support Starts at $3,377

The top of the recent 18-day range at $3,377 and down to approximately $3,366, was previously resistance near the top of the recent bottom range and therefore presents a potential support zone. Further down is the 20-Day MA at $3,340. The day prior to this week’s two-day rally a retest of support at the 20-Day line occurred. And since the 20-Day MA is close to the 50-Day MA, now at $3,335.

Another Breakout or Failure?

As the apex of the pennant triangle is approached, the chance for a bull breakout or bearish failure increases. The weekly chart is supportive of an upside breakout. Even without the pennant pattern, a weekly bullish signal was triggered this week as a higher high and higher low for the week was established this week. A weekly closing price above last week’s high of $3,377 will confirm the weekly trend continuation signal.

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