Gold weakened further on Wednesday following an initial breakdown from a pennant consolidation formation. Selling intensified once the recent low of $3,302 failed as support. Currently, sellers remain in charge and trading continues near the lows the day, now at $3,268. Therefore, the low for the day may be lower before the end of today’s session. Today’s high of $3,334 completed a test of resistance at the lower trendline of the pennant, like Tuesday’s high.
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See all Gold forecastsRecently, the 20-Day and 50-Day MAs converged to mark a similar price and reflect volatility contraction. Typically, that is followed by expansion, which is seen today with the sharp drop. Since the result was a breakdown of a potential bull pennant rather than an advance, today’s decline might be the beginning of a sharp pullback.
Failed Bull Pattern is Bearish
The decisive breakdown from a consolidation top puts the near-term bull trend in gold at risk of a deeper correction. Unless there is a relatively quick recovery it looks like gold is heading next towards the higher swing low of $3,247 from late-June. If that fails as support, the higher swing low at $3,121 becomes a potential target.
Since the initial pullback from the April record high of $3,500 completed a 38.2% Fibonacci retracement before another advance began, there is a good chance a deeper retracement may be completed in the current correction, given today’s bearish price action. A 50% retracement will be completed at $3,041 and a 61.8% Fibonacci retracement is at $2,933.
Downside Targets
Given the clear failure of the 50-Day MA as support for today, the 200-Day MA, now at $3,000, becomes a potential downside target. Since it is rising it will eventually converge and surpass the 50% retracement area. There is also a falling ABCD pattern that has been added to the chart to help assess potential lower targets. It shows an initial downside target of $3,072, a little below the last retracement low (B) and near the 50% level. That is where the decline in price for the falling CD leg matches the decline in the first AB downswing. Once that happens, a potential pivot level is identified.
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