Gold Price Forecast: Bullish Breakout Stalls, Bearish Risks Increasing

Despite the poor performance of a bull pennant breakout that triggered on Wednesday, gold managed to hold up near trend highs on Friday. Friday was another low volatility day with a relatively narrow range for the third day in a row. Nonetheless, Friday will likely establish a lower daily high and lower daily low for the first time in five days.

And if the closing price is near current levels at the time of this writing, it will close near the close of the prior two days and at the top boundary line of a bull pennant trend continuation pattern. That shows resistance at the top of the bullish pattern and therefore a failed breakout so far.

Failed Breakout

A failed bullish breakout has the potential to follow through in the opposite direction. In other words, the chance for a bearish reversal is increasing. Today’s low of $2,917 is key near-term support as a drop below it may lead to a test of support near the lower boundary line of the pennant and a possible drop through the bottom of the pattern. As of today, the lower line looks to be around Tuesday’s low of 2,892 and therefore it can be used as a proxy for the line.

Support Levels Look Solid

Nonetheless, if the line is broken then there is an interim minor swing low included in the pennant formation at $2.878. A little lower is a lower swing low and the bottom of the pennant at $2,864. Notice that today the 20-Day MA (purple) has risen to $2,862, almost matching the pennant bottom.

Those two indicators are key to the current advance. If either is broken to the downside and gold stays there, the likelihood of a deeper bearish retracement increases. The angle of ascent for the trend will then change, possibly to match the lower 50-Day MA, now at $2,743.

Bullish Possible May Yet Occur

Despite the slow start to the pennant breakout, a decisive advance above this week’s high of $2,955 would trigger a bullish continuation of the trend on the weekly time frame. And that would put gold on track to target higher price levels. A 300% extension shows a possible target at $2,982. Further up is another extended price target at $3,012.

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