Gold Price Forecast: Stalled at Resistance – Bearish Continuation Ahead?

Gold continued to show strength on Friday as it further consolidated and tested resistance around 78.6% retracement area at $2,930. There is a tight four-day consolidation range starting from Tuesday’s low of $2,882 and rising to today’s high of $2,930. Following another test of resistance at the 78.6% retracement, gold is on track to end Friday’s session in a relatively weak position, in the lower half of the day’s trading range and below the 20-Day MA, now at $2,911.

Today may be the first daily close below the 20-Day line since it was reclaimed four days ago. And it will follow a failed attempt to break out to a new high for the trend earlier in the session. Failed breakouts can lead to sharp moves in the opposite direction.

Another Leg Down Anticipated

Another leg down in gold has been anticipated given last week’s bearish reversal following a new record high of $2,956. The week ended with a weekly bearish engulfing pattern as gold fell below support of the prior two weeks and it ended the week in a bearish position, in the lower third of the week’s trading range. Furthermore, a breakdown of a rising trendline and 20-Day MA triggered, thereby further confirming weakness. There has been only one leg down from the $2,956 record high today and a minimum of two legs down is common for a bearish retracement.

Successful Test of Resistance

This week’s advance tested prior support of the trendline as resistance, and resistance was seen around the line. The 20-Day line is the other trend indicator that was tested as resistance, but it failed as resistance because gold rose above the 20-Day MA and traded above it for four days. Nonetheless, taken together, gold may have completed its counter trend rally to test prior support as resistance. Once that happens, the chance for a bearish continuation improves.

Inside Week Provides Key Price Levels

An inside week is established for this week, leaving two key price levels to be considered. The low for the week was $2,855 and the high is $2,930. A decisive move through either price level may determine the next direction. Although the technical evidence is more on the bearish side, a sustained rally above this week’s high would require a realignment of views and would open the possibility of a bullish continuation of the trend in the near term. On the downside, the next lower target for gold if the recent swing low at $2,833 fails to retain support, is a range around $2,813 to $2,810, consisting of the 38.2% Fibonacci retracement and the initial target for a falling ABCD pattern, respectively.

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