Gold (XAU/USD) Price Forecast: Bullish Reversal Hints at End of Correction

Short-Term Reversal Above Key Level

The price of spot gold triggered a one-day bullish reversal above $4,884 on Tuesday, advancing to a high of $4,994. Strength was indicated by a reclaim of the 20-day average at $4,805, while the breakout will confirm on a close above Monday’s high of $4,884. The day’s advance was a little shy of potential resistance near the 10-day average at $5,020. A higher daily low at $4,664 and a higher high will complete today. Key potential short-term support is now at the 20-day average and today’s low, while resistance is at the 10-day average and a weekly high of $4,990.

Spot gold daily chart shows one-day bullish reversal off support confluence (Source: TradingView).

Bigger Picture Remains Bullish

Regardless of recent weakness, the bigger picture in gold remains bullish. The bearish correction established a low of $4,402 on Monday. That showed a 21.4% decline in the price of gold from the $5,998 peak last week. Support was seen at the confluence of several indicators, which adds to its significance and the likelihood that it holds as support for at least a little while.

Strong Confluence of Support

Near the bottom is the 50-day average at $4,500 and the 88.6% Fibonacci completion of an 88.6% retracement at $4,425. Also of significance is that support was seen at the top of a rising channel that used to represent resistance. Once prior resistance is shown as support, the dominant trend may be ready to proceed. Note that the 50-day average has held as support since it was reclaimed in August. Monday was the first time that average has been touched since August. But it is the combination of support at the 50-day line and the top of the channel, that suggests that a low for the bearish correction may have been established.

Spot gold weekly chart shows hold of channel breakout and bearish shooting star top (Source: TradingView).

Potential Resistance Ahead

This analysis doesn’t mean that gold shoots right to a new high. There was some damage done during the sharp two-day decline beginning on Friday with a drop below $5,101. That low is now part of a potential resistance zone to the 61.8% Fibonacci retracement of the decline at $5,141. If gold can continue higher after that it heads towards a 78.6% Fibonacci retracement zone at $5,342. But a bearish weekly shooting star candle pattern from last week suggests that downward pressure in gold may take a little time to work its way through.