Gold (XAUUSD) Price Forecast: Retreats After Failed Breakout, Eyes Deeper Pullback

Sellers took back control of gold on Friday as it fell to a five-day low of $3,311 and established a lower daily high and lower low. It may still reach a lower price for the day before the closing of the session, as trading continues near the lows of the day, at the time of this writing. Near-term support levels, ending at $3,328, failed to halt the slide and it looks likely that a test of the 20-Day MA, now at $3,295, is likely.

Bearish Price Action

Today’s short-term bearish price action reflects weakness following a potentially significant bull breakout that was triggered on Monday. A double breakout occurred on Monday as gold rose above a downtrend line and prior swing high (B). Today’s price action shows a potential failure of the breakout, as there has been no upside follow-through, other than a failed attempt to continue higher on Thursday.

Gold fell below two trendlines today that represented potential support, a declining purple line and rising blue line. A decline below the lower blue line could lead to further weakness as it represented dynamic support for the near-term uptrend that began from the May swing low (A). This will change the angle of ascent for the trend and therefore a recovery may not occur quickly.

Potential Support Levels

Potential support around the 20-Day MA at $3,29, is enhanced by this week’s low, which showed support at $3,296. However, it also indicates a greater potential risk of a deeper pullback. Gold is set to end the week with a bearish shooting star weekly candlestick pattern. And it follows a failed upside breakout. Failed patterns can lead to sharp moves the other direction.

Weekly Bearish Pattern

A drop below this week’s low will make last week’s low of $3,245, a potential downside target. Note that it aligns with the higher swing low (C) on the daily chart. However, the 50-Day MA marks a potential higher support level, now at $3,260. The 20-Day MA has not been confirmed as key dynamic trend support yet as the line has gone through a consolidation range since the May 1 interim swing low. Therefore, the 50-Day MA becomes a potential target.

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