Gold (XAU/USD) Price Forecast: Consolidation Possible After Failed Breakout

Gold rallied into resistance at $5,092 on Wednesday, before sellers took back control. The initial advance reclaimed the 10-day average briefly, before price fell back below the indicator. Gold is set to close the day’s session in a relatively weak position, in the lower half of the range. That will follow a failed breakout of the 10-day average. A higher daily low of $4,852 was established and confirmation of support near the 20-day average confirmed. If the 20-day line remains as near-term support, then gold has a chance to continue to press up against a resistance zone from today’s high to the 61.8% Fibonacci retracement level at $5,141, in the short-term.

Bearish Close Signals Potential Pause or Pullback

A bearish close is set for Wednesday and that suggests a day or two of consolidation may occur, as the gold market determines whether a short-term pullback will happen before another attempt at higher prices. Since there has been only one leg up on the bounce, a second leg up following a pullback may be coming.

Broad Trading Range Defines Choppy Market Conditions

Nonetheless, gold is trading within a large range from $4,402 to $5,598. It defines the parameters of the retracement to support near the 50-day average from Monday, that followed the record high last week. This also means that trading may be choppy, while gold remains in that price range. Therefore, the response to price levels inside the range may not be the same as seen in other circumstances.

Key Support Levels Reinforce Intermediate Bull Trend

Key support for gold is defined by the 50-day moving average at $4,516 and this week’s higher swing low of $4,402. The sharp reversal from support near the 50-day line on Monday shows strong buying, as reflected in the long daily tail. As trading continues the market will provide additional information to assist in identifying which price levels to give more weight to. During that process, the bull trend remains intact if trading remains above the key intermediate trend indicator, the 50-day average.

Fibonacci Resistance Marks Potential Upside Target

An upside target within the price range is at the 78.6% Fibonacci retracement of $5,342. Given the spike in volatility seen in the recent decline, an equally convincing counter-trend reaction could result. A rise towards the 78.6% zone could go a long way in scaring buyers back into the market who are afraid to miss out on the next rally.