Gold (XAU/USD) Price Forecast: Key Support Holds Amid Short-Term Weakness

Short-Term Weakness and Near-Term Support

Gold bounced to a high of $5,011 on Wednesday, where it tested resistance for a second day at the 20-day average. This continues to reflect short-term weakness until the 20-day average, currently at $5,003, can be reclaimed. There remains the potential for a higher bounce in gold if key support levels are retained during any further weakness. Tuesday’s low of $4,842 is near-term support. If it breaks, then a deeper pullback from last week’s lower swing high at $5,119 becomes more likely.

Key Support Levels and Swing Analysis

Key lower support is at the 50-day moving average, now at $4,673 and rising. However, the recent interim swing low at $4,655 should be considered alongside with the 50-day line. If that higher swing low is violated, the second leg up from the bottom would fail. The second leg up began from that low and goes to a slightly new high of $5,119 from last week, while the first leg up ended at $5,092. Note that the high for the bounce fell slightly short of completing a 61.8% Fibonacci retracement of the recent large decline at $5,141.

Long-Term Trend Channel Context

A consideration for long-term holders of gold is the relationship to the rising trend channel. The recent higher swing low of $4,402 is part of the bull trend structure of higher swing lows and highs. Despite the sharp decline of 21.4% from the $5,598 peak, support at the 50-day average held and led to a sharp reversal. Moreover, the significance of that support area was enhanced by the top of the channel. That top boundary was successfully tested as support for the first time since the January trend breakout. The confluence of the two indicators near the low, further validates the importance of that support zone.

Volatility and Short-Term Outlook

Volatility has declined over the past couple of weeks or so, suggesting that gold may remain sluggish for a while longer, as consolidation behavior continues. The downside is clear for now, but the upside scenario remains relevant for the short-term. It should probably also be said that a new high in gold is not anticipated for the foreseeable future, with gold looking likely to trade above the 50-day average but below the $5,598 peak. A decisive rally above Tuesday’s high of $5,010 should be followed by a reclaim of the 20-day average. If strength is subsequently retained, a recovery above $5,119 should follow, opening the door to the 78.6% Fibonacci retracement target at $5,345.

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