Gold (XAU/USD) Price Forecast: Uncertainty Rises After Bearish Reversal

Uncertainty Rules Following Sharp Bearish Reversal

Heightened uncertainty in gold is to be expected given last week’s sharp bearish reversal and subsequent reaction this week. A new retracement low of $4,402 hit on Monday, successfully finding support near the 50-day average. That was a four-week low that put the price of gold near the recent breakout level from a rising trend channel. The bounce that followed found resistance at a high of $4,092 on Wednesday, closing below the 10-day average.

First Pullback Tests Key Moving Averages

This week was the first pullback following last week’s trend reversal. On Thursday, gold triggered a one-day bearish reversal below Wednesday’s low and then fell back below the 20-day average, showing weakness. This puts the 50-day average in sight, as another test of the line may occur. However, given recent volatilit,y a dip that generates a higher swing low could result in a second leg up from the bottom. Near-term support is at Tuesday’s low of $4,664, followed by the 50-day average at $4,530 and the week’s low. Another scenario is that gold consolidates for a while below the 10-day average and above the 50-day average.

Multiple Indicators Reinforce Current Support Zone

There are several indicators alerting to the support zone seen this week. That suggests that it should hold for now. In addition to the 50-day average, support was seen at the confluence of two other indicators. The top of a rising channel that represented resistance previously was recognized as support and the 88.6% retracement of the recent internal upswing is at $4,425.

Short-Term Signals and Upside Recovery Scenarios

Short-term, the relationship to the 20-day average, now at $4,848, may provide some clues. Wednesday successfully tested support at the 20-day line, as the day’s low was at $4,852. A rally above today’s high shows strength and might be followed by an advance above this week’s high. If today was Friday, gold would be ending with a doji, confirming the uncertainty seen in the shorter timeframe daily chart. Nonetheless, a breakout of this week’s high after this week will put gold on track to test the 78.6% retracement level at $5,342, the current upside target.

If you’d like to know more about technical analysis and how traders use it, please visit our educational area.