Failure of 10-Day Leads to 20-Day Average
This week began with a sharp one-day decline to a seven-day low of $4,303 on Monday. This was a successful test of support at the 20-day average as a bounce followed on Tuesday to test resistance near the 10-day. The 10-day line was recently an area for dynamic support but Monday’s decline below the 10-day and subsequent test as resistance confirms its failure, at least for now.
20-Day Average and Trendline Confluence
The 20-day average, at $4,314 currently, is a more significant trend indicator given it longer scope and confluence with the short-term rising trendline. In addition, a top channel line marks a similar potential support area. There was a reclaim of the 20-day average on November 10 and it has largely acted as dynamic support since then. Monday’s pullback was the first since gold confirmed a continuation of the long-term bull trend with a new daily closing high on December 22. That led to a new record high of $4,550 before sellers took back control on Monday.
Risk of Deeper Correction Below Monday’s Low
Three indicators mark Monday’s low as a potential support area. This makes the area significant and most likely to lead to further strengthening. But there is also a chance that it is the beginning of a deeper correction. This week’s decline led to a drop below last week’s low of $4,338. That was the first drop below a prior week’s low since a series of higher weekly lows followed the October higher swing low.
This shows the potential for further downward pressure. Therefore, a decisive breakdown below $4,303 looks likely to lead to a test of support near the 50-day average, which is now at $4,172. There is also a prior weekly low at $4,170, further highlighting that price area.
Overhead Resistance and Upside Price Targets
Resistance for the bull trend was seen near two initial upside targets. On the way to the $4,550 record high a 127.2% extension of the October correction completed at $4,516. While a 161.8% projected rising ABCD target pointed to $4,578. This is why price levels are considered as areas of price, as resistance was seen roughly halfway between the two target levels.
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See all Gold forecastsOutlook: Recovery Favored Unless Key Support Breaks
A recovery from the 20-day average towards new highs looks to be the most likely scenario given the long-term bull trend structure, unless there is a sustained decline below Monday’s low. Even though holding above the 50-day average is long-term bullish, a drop to that line before new highs would confirm weakening of the short-term bull trend as represented by the 20-day average.
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