Gold Price Forecast: Bull Flag Breakout Targets New Highs if Strength Continues

Gold continued to strengthen on Wednesday following the recent breakout of a bull flag formation. The day’s high of 2,685.37 tested resistance around the prior record high of 2,685.56 from late-September but was unable to breakout above it. At the time of this writing, gold has pulled back from the high and is at risk of closing relatively weak, below the halfway point of the day’s trading range, which is at 2,672.

Key Near-term Support at Today’s Low of 2,659

A decline below today’s low of 2,659 could lead to a test of support around the top flag trendline or the 20-Day MA around 2,645. However, if the 20-Day line fails to hold as support the chance for a deeper retracement and failure of the bull flag breakout may be in play.

Price behavior around the 20-Day line should provide clues and watched as an area of potential support. Notice that during the pullback that formed the flag, the 20-Day line was breached for a couple days but it was relatively quicky reclaimed.

Weekly Breakout Support Rally

Also, note that last week’s low was at 2,638. It also provides an important price level as a drop below it would trigger a weekly bearish reversal. That is not what would be expected if gold is to have a chance to breakout to new record highs after triggering the bull flag. The weekly chart (not shown) provides support for the bullish scenario this week triggered a bullish weekly reversal on a move above last week’s high of 2,661. Last week’s pattern happens to be a bullish hammer candlestick.

Rally Above Today’s High Triggers Upside Continuation

A decisive rally above today’s high should lead to a new high in gold and signal a continuation of the bull trend. Subsequently, it heads towards a Fibonacci confluence zone where resistance may be seen. The confluence zone is from 2,724 to 2,754. However, when calculating a potential target from the bull flag formation, a price of 2,815 is indicated. This doesn’t mean it will be reached soon, but it could be hit eventually. Targets are one of the least reliable components of technical analysis. Nevertheless, it indicates potential upside for the price of gold once a bullish continuation of the trend is triggered.

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