Gold (XAU/USD) Price Forecast: Pullback Holds Support, Upside Bias Intact

Short-Term Pullback Tests 10-Day Support

Gold took a rest on Wednesday, as it pulled back to test support near the 10-day average with the day’s low of $4,423. An outside day was generated as the $4,500 high for the day was slightly above Tuesday’s high and the low below yesterday’s low. The 10-day average was reclaimed on Monday with a strong one-day rally that confirmed support near the 20-day average.

That was the first day in three where the day’s range was above the 20-day line and it showed improving short-term momentum. Given the test of the 10-day average today’s low is key short-term support. Gold continues to show short-term strength if its daily closing price stays above the 10-day average.

Fibonacci Retracements Confirm Underlying Strength

The recent pullback in gold found support near the 38.2% Fibonacci retracement. That followed the completion of 38.2% retracement following the October high of $4,381. Those area relatively mild pullbacks and reflect underlying strength. Although the October pullback dipped below the 20-day average, the recovery was relatively quick. Last week’s bounce off support near the 20-day line further confirmed it as dynamic support, while strength was further confirmed on the reclaim of the 10-day average.

Bullish Structure Intact Despite Momentum Risks

Gold is showing all that signs that it is likely heading higher. That will continue to be the case if it stays above the 20-day line. A slowdown in short-term bullish momentum may occur if the 10-day average fails as support. The relatively quick recovery of the 10-day average further confirmed that the correction is complete and that gold could keep trending higher. Whether it does that quickly or after some degree of consolidation remains to be seen. The sharp one-day decline to a seven-day low that followed the $4,550 high showed aggressive selling that could hamper momentum in the current leg up.

Upside Targets and Key Support Levels Ahead

A breakout above today’s high triggers a bullish continuation towards the $4,500 level with a new high breakout likely. The next higher potential resistance zone looks to be around $4,664 to $4,713, with another target level a little higher at $4,766. If instead, momentum stalls and gold dips to the 20-day average, that could leave it in a stronger position to subsequently break out to new highs. The 20-day average is now at $4,365.

For a look at all of today’s economic events, check out our economic calendar.