Gold Price Forecast: Potential Breakout as Volatility Contracts Near Key Levels

Gold further consolidated on Tuesday in a tightening consolidation pattern, while retaining support around the 20-Day MA on a daily closing basis. Until gold breaks out of the three-week, volatility will stay muted. The high of the range is 2,532 and the low is 2,471. This week begins the third week in a row that gold has traded within the price range from three- weeks ago.

It is a testament to the contraction in volatility. Gold successfully tested support of the 20-Day MA today as it hit a low of 2,500 and then reversed higher. Subsequently, it is on track to close near the highs of the day and above yesterday’s high of 2,507. Might this lead to another challenge to the 2,532-record high?

Support at 2,471

Resistance around the record high has been tested six out of the past 15 days, since the tight consolidation pattern began. Given that the short and long-term trends are all bullish the potential for a sharp upside breakout and rise to new record highs is a leading possible scenario for what might happen next. It is also possible that a shakeout move down occurs first.

A decline below 2,471 would begin a breakdown that heads back into the price range of the recent symmetrical triangle pattern. Gold broke up and out of that pattern four weeks ago but has been range bound since. There is a potential support zone within the triangle from a prior swing high at 2,450 and the 50-Day MA at 2,446. A daily close below the 50-Day line increases caution as further weakening will point to a failure of the recent triangle bull breakout.

Upside Breakout Above 2,532

An upside breakout is indicated on a decisive advance above 2,532. The target that is derived by measuring the symmetrical triangle is 2,605. The target is confirmed by the 127.2% extended target for a rising ABCD pattern (purple) that is nearby at 2,595. If gold can keep rising from there it looks to be heading towards a range from 2,654 to 2,661. Although these potential targets show possible areas where resistance may be seen, they provide only a guide. Price action around these price levels needs to be watched for signs of further strength or weakness.

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