Gold (XAU/USD) Price Forecast: Expanding Consolidation Forms New Boundaries

Gold found buyers on Friday as it rallied to a five-day high of $3,355 and a test of prior support as resistance at the confluence of several indicators. A resistance zone is identified around the bottom trendline of a pennant formation (dotted) and the convergence of the 20-Day and 50-Day MAs, now around $3,342.

On Monday, a breakdown from a pennant pattern triggered, which led to a $3,268 higher swing low from Wednesday. Today’s counter-trend rally showed strength as the potential resistance zone was exceeded, as well as a four-day high at $3,345. A daily closing today above $3,342 would confirm strength indicated by the breakout.

Larger Pennant Triangle Forms

A decisive and sustained breakout above today’s high would put gold back into the pennant formation. Potential support would then be around the moving averages. If this scenario begins to unfold and momentum stays muted, the pennant pattern may be in the process of expanding its footprint as consolidation continues.

This week’s low establishes a higher swing low, which retains the pattern of recent higher swing lows. Moreover, the recent upside breakout of the pattern failed to follow-through and generated a lower swing high. New trendlines have been added to the expanded parameters of the pattern, while the initial boundary lines remain as dotted blue lines.

Breakout Timing Extended

The new territory of the pennant shows that consolidation could continue for another month or so before a decisive breakout from the new parameter’s triggers, given the location of the pennant triangle apex. Key price levels are last week’s lower swing high of $3,349 and this week’s higher swing low at $3,268. Trendlines indicate a narrower price range but are less unreliable as a signal.

Bullish Weekly Pattern

The weekly chart provides supporting evidence that strength could be maintained within the newly formed pennant boundaries. This week’s low found support near the long-term 20-Week MA. It was followed by a rally that looks likely to end the week in the green and near the highs for the week. Unless there is a sharp selloff before the closing of the session, gold will form a bullish hammer candlestick pattern. It is interesting to note that this bullish candlestick pattern will follow last week’s bearish shooting star pattern.

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