Gold (XAU/USD) Price Forecast: Rebounds Following Deeper Pullback

Gold pulled back to a new trend low on Thursday, before finding support and bouncing. The low for the day at $3,310 was a successful test of support around the short downtrend line. An upside breakout triggered last Friday, and it has been a dynamic support zone since then. Following the low, buyers stepped in and drove the price back up to the top half of the day’s range and above the 20-Day MA, now at $3,331, along with a couple AVWAP levels and the 50-Day MA. Volume also improved from the relatively low levels of the past few days or so.

Pullback May Be Complete

Today’s behavior shows improving demand for gold and possibly the completion of another test of the lower uptrend line across the bottom of a developing bull pennant pattern. Therefore, the short-term pullback is likely complete. A daily close above the 20-Day MA will confirm strength indicated by the reclaim of the 20-Day line.

Moreover, the day is set to end with a potentially bullish hammer candlestick pattern. Although it is not distinct at the bottom of a downtrend, it does provide another piece of bullish evidence. Also, the one-day pattern, which indicates an intraday bullish reversal, can be used to alert a short-term bullish indication on a rise above the high for the day, currently at $3,352.

Potential Bull Pennant Breakout

It is important to understand however, that a hammer breakout would be happening inside a five-day price range, which may impact the response. On Wednesday, gold triggered an upside breakout of a 16-day relatively tight price range and reached a new high for the range at $3,377. The breakout failed to follow through and led to the drop to a six-day low of $3,310 today.

That high was a three-week high. So, a breakout above $3,377 will confirm a multi-week bull breakout. Of course, this would be a bullish sign and put gold in site of the top line at the top of the pennant pattern. That could lead to the pennant triggering an upside-breakout, or a consolidation of some degree first.

Weekly Trend Improves

With Wednesday’s rally a higher weekly high was established, and a higher low will be completed today. This is the second week for the pattern, and it shows improving demand. Although a break above the top trendline triggers the pennant, a more significant signal would be above the lower swing high at $3,451. An initial upside target is at $3,578, indicated by a rising ABCD pattern.

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