Gold Price Forecast: Bear Flag Breakdown Faces Uncertainty

Another failed breakdown from a bearish flag pattern triggered in gold on Friday. Gold dropped below the lower parallel line (purple) defining the flag and the 20-Day MA, which is in a similar price area.

However, so far, the breakdown does not seem to be attracting sellers as once support was reached at a low of 2,614 for the day, buyers took back control and drove the price back up to above the 20-Day MA, currently at 2,629. Gold may yet close above the 20-Day line and retain support. Moreover, there is the possibility that a bullish hammer candlestick pattern is formed today.

Breakdown Does not Follow-Through

Price behavior around the flag opens a question of whether the flag will turn out to be a valid pattern. As with all consolidation patterns, they can evolve and morph into larger or different patterns. There remains a bear flag but if gold closes above the 20-Day line it has a chance to continue to strengthen.

Therefore, a rally above today’s high of 2,614 could lead to gold again testing resistance around recent daily highs of 2,632 or the 50-Day MA at 2,668. A rally above and subsequent daily close above the 50-Day line would need to happen before gold was able to keep rising. Also, a minor swing low pivot is at 2,666 and it can be viewed in a similar manner to the 50-Day line.

Bounce Possible

Confirmation of the flag breakdown would be indicated on a drop below today’s low of 2,614, and more so on a decline below the bottom of the flag at 2,605. A 61.8% Fibonacci retracement of the short upswing completed at 2,607, which led to the bounce that formed the flag. The next lower support zone is around the most recent swing low of 2,537.

If that price area fails to hold and reverse a decline, the next lower target zone is down around 2,473. It includes the 61.8% Fibonacci retracement of the upswing that began from the May swing low, two trendlines, and the target for a falling ABCD pattern (D). The two trendlines to watch include the bottom falling parallel channel line and a rising trendline.

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