Gold (XAU/USD) Price Forecast: Volatility Surge Signals Possible Top

Gold Drops Sharply as Volatility Spikes

Gold sold off hard on Friday, reaching a six-day low $4,684 after both the 10-day and 20-day averages failed as support. Volatility spiked for the day leading to a high-to-low range of 14%. This is an extreme event for gold and shows aggressive selling of the precious metal. It looks likely that gold will complete Friday’s session in a relatively bearish position in the lower third of the day’s range, which started from a high of $5,451. This would put gold below the 10-day line but above the 20-day average, on a daily closing basis.

Key Support Holds Despite Heavy Selling

Friday’s extreme volatility is rare for gold and will likely lead to a period of greater uncertainty. A daily close above the 20-day average shows the possible completion of a bearish correction to that dynamic support line. Although price dropped below the 20-day average, it was quickly recovered and followed by a daily close above it.

Moreover, support near the 20-day average is confirmed by a 61.8% Fibonacci retracement at $4,778 and the 50% retracement of a larger upswing at $$4,741. This further confirms the significance of the day’s low since it was at the confluence of support from several indicators.

Short-Term Trend Weakens Amid Rising Volatility

Although today’s bearish price action points to the establishment of a likely top in gold, at least for now, bounces from current levels may continue to face resistance. The added volatility – large daily range – shows the potential for tradeable rallies with the day’s range. Holding support at the 20-day average keep gold in a solid trend position. Only the short-term trend has reversed. The 20-day line needs to stay as support, though, for that near-term dominant trend to be retained.

Resistance Levels and Near-Term Trade Outlook

Potential resistance is at the 10-day average, at $5,001 currently, and near Thursday’s low of $5,101. Given the wide range for Friday there is plenty of potential for gold to trade range bounce but above the 20-day average. Sharp moves in one direction are frequently following by fast moves in the opposite direction. Once a down move is complete, the bounce could be aggressive as traders who have been waiting to jump into gold start to see the selloff as an opportunity at lower prices.

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