Gold (XAU/USD) Price Forecast: Volatility Signals Near-Term Pullback Risk

Bearish Outside Day Signals Potential Short-Term Pullback

A bearish outside day triggered in gold on Thursday, setting the stage for a possible pullback to lower prices or consolidation. The precious metal is set to have its first down day in nine days and end the pattern of higher daily lows that partially defines the short-term uptrend. Thursday’s session began with a breakout to a new record high of $5,598, before sellers took back control and drove the price below Thursday’s low to $5,101.

Expanded Daily Range Points to Rising Volatility

Heightened volatility seen in the relatively large range day Thursday, shows price discovery expanding the price range. This implies that consolidation within the day’s range may occur before a resolution out of the daily range. Given key short-term support represented by the rising 10-day average at $4,970, a correction could complete as consolidation. Once the average touches price, the chance for a move increases, as that will complete a successful test of support. And it would be the first test of the 10-day line since January 16. Retaining dynamic support at the 10-day average, followed by strength, would go a long way to preparing for a continuation of the bull trend.

10-Day Average Becomes Key Near-Term Support

Several upside targets were exceeded earlier this week until a 341.4% (√2 + 2) extension of the October pullback at $5,576 was hit Thursday. That was shortly followed by a selloff resulting in an outside day. It is also interesting to note that Thursday is set to have the first lower daily close since the January 19 breakout.

Fibonacci Extension Marks Possible Exhaustion Point

The strength or weakness shown by this week’s closing price may shed some light on momentum. This week’s range is $4,990 to $5,598. Where the weekly closing price is relative to the range may add information about underlying strength or weakness. Although initial downside targets start with the 10-day average, the larger view shows the possibility of the drop to prior highs at $4,537, especially since the 10-week average is nearby at $4,536.

Pullback Viewed as Healthy Within Broader Uptrend

A correction of some degree, with either a pullback or range-bound price action, would be healthy for the long-term trend. And if support is retained above the 10-day average, the expectation is for a resolution to the upside, new trend highs.

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