Gold Price Forecast: Bearish Reversal Pattern Points to Downward Pressure

Gold traded inside day on Tuesday following a drop that successfully tested support at the 50-Day MA and 61.8% Fibonacci retracement zone earlier in trading session. Resistance was seen at today’s high of 2,418, which was a successful test of resistance at the 20-Day MA. Gold is on track to close lower for the day and in the bottom third of the day’s trading range. Further tests of support around the 50-Day MA are possible and a breakdown below the 50-Day line remains a risk.

Stuck Within Consolidation Channel

Since May gold has been tracing out a rising trend channel during a consolidation phase that followed an initial 22.5% rally. The latest attempt to breakout to the upside was met with resistance at 2,478 (C) thereby generating a lower swing high. That swing high marks the end of the BC leg of a falling ABCD pattern. The first downside target for the pattern is 2,347.

However, since that target is close to the lower boundary of the trend channel, it looks likely that it may be tested as support before the bearish correction is complete. The lower line is joined by an uptrend line drawn from the October swing low. Moreover, the 127.2% Fibonacci extended target from the ABCD pattern completes at 2,312. It provides a specific price that can be watched along with viewing the trendlines.

Lower Price at Risk of Being Tested as Support

A rising trend channel can have risk like that of a rising wedge. The rising wedge is a bearish continuation or reversal pattern, depending on where it forms within the larger pattern. Similarly, there is the potential for a rising channel to break down instead of up. As the equity markets have begun to retrace the prior advance with higher conviction, gold has remained relatively strong, above its 50-Day line and still contained within the rising trend channel pattern.

Therefore, although it may not break down from the channel, it does remain at risk of testing the lower area of the channel as support. Further, gold triggered a bearish weekly reversal during Monday’s selloff as it fell below last week’s low of 2,478. A daily close below that price level confirms the reversal.

Gold Turns Short-term Bullish Above 2,418

On the upside, a bullish daily signal will be triggered on a rise above today’s high of 2,418. That would also put gold back above its 20-Day line and open the door to a test of the 2,478-swing high.

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