Gold (XAU/USD) Price Forecast: Falling Wedge Signals Key Inflection Zone

Support Zone Reaction at 200-Day Average

Gold bounced off support near the 200-day moving average on Thursday and triggered a one-day bullish reversal with an outside-day candle pattern. However, a daily close above Wednesday’s high of $4,497 is needed to confirm the bullish move. Gold remains at risk of a bearish continuation move until there are clear bullish signs.

This was the fourth day out of seven that support was tested near the 200-day average, reflecting continued downward pressure. But unless there is a bearish signal below the short-term trend low of $4,366 from last week, that support structure remains intact and may instead give way to renewed strength.

Structural Support Holding the Larger Trend

That is a key structural support level, as it is a higher swing low and a successful test of support near the 200-day moving average. Since support was clearly seen near the 200-day average during the March decline, that indicator has significance for the long-term bullish trend. As long as it holds as support, there is the possibility of a sustained bullish reversal. For now, the corrective decline that followed the January peak of $5,597 remains in force.

Reversal Triggers and Momentum Thresholds

The lower swing high of $4,595 would need to be recovered for a bullish reversal signal of structure to occur. That would also trigger a reclaim of the 20-day moving average at $4,557, along with the downtrend line, which would provide signs of strengthening. A bullish reversal above the lower swing high is likely to quickly reclaim the 50-day moving average at $4,634. Also, that high is a weekly high of a three-week relatively tight range.

Falling Wedge Compression Builds Breakout Potential

During the bearish correction of the past six weeks or so, gold has consolidated in a declining consolidation pattern that takes the form of a bullish falling wedge pattern. Volatility has declined during this phase as energy builds for a breakout of consolidation. So, an upside breakout above the lower swing high of $4,595 will also trigger the breakout of the wedge. If a breakout is successfully confirmed, the lower swing highs at $4,774 and $4,891 point to initial upside targets.

On the downside, a continuation of the bearish correction, with a drop below $4,366, puts the 78.6% Fibonacci retracement at $4,262 as a target. If that occurs, be aware of the lower boundary line of the falling wedge, as it might also act as a potential support zone.