Gold (XAU/USD) Price Forecast: Pennant Signals Potential Upside Breakout

Consolidation and Pennant Formation

Gold showed strength with demand being sustained near recent highs. For the fourth day it has consolidated in a relatively narrow range with a high of $5,250. This follows a decisive reclaim of both the 10-day and 20-day moving averages beginning last Friday. The four-day range has taken the shape of a small bull pennant. This is reflected by sequential inside days that show volatility compressing. After compression comes expansion and the potential for trend.

Upside Targets and Technical Confluence

An upside breakout of the small pennant will trigger on a move above $5,250. It should be accompanied by strong momentum that could easily lead to the next upside target at $5,345. That upside target is defined by the confluence of a 78.6% Fibonacci retracement and 100% projected target for a rising ABCD pattern. Since the two indicators mark the same price, it has a better chance of being reached than if only one indicator marks the spot.

Trend Context and Support

The current advance is in response to the sharp 21.4% decline in only three days that preceded it. Therefore, gold is anticipated to find solid resistance prior to the $5,598 record high from January. This suggests that a high for the bounce is followed by further consolidation within the three-day range from $4,402 to $5,598. However, the 50-day average provides key dynamic trend support and is now above the recent low at $4,776. The 50-day average remains a key trend support indicator, as the intermediate bull trend remains intact on trade above that 50-day line.

Weekly Confirmation and Near-Term Signals

An upside breakout to a four-day high triggered this week and it will confirm on a weekly closing basis above $5,119. That would also confirm that highest weekly closing price historically, reflecting remaining strong underlying demand for gold. This week’ low of $5,091 is important near-term support as it is a higher weekly low to go along with the higher weekly high. This is bullish behavior in the near-term. But a large weekly bearish shooting star candlestick pattern at the top of the trend suggests that a rally may not lead to new trend highs before further consolidation.

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