Market Uncertainty Rises: Gold Consolidates, but Where Is It Heading?

Gold Forecast Video for 05.10.23 by Bruce Powers

Gold stalls its decent as it consolidates and trades inside day on Tuesday. This keeps the bearish trend well intact, with a drop below today’s low of 1,817 providing the first sign for further weakness. Subsequently, a decline below the 1,815 trend low triggers a continuation of the bear trend.

Lower Support Starts Around 1,809

If triggered, a lower support zone starts from around 1,809 and goes down to 1,787. That range is the area of the swing low from late-February to early-March and a little below it. It includes the target from a falling measured move (purple arrow lines). A decline below the swing low would not be a surprise to see as there are likely stops to be triggered before selling exhaustion kicks in. Further, there are a couple Fibonacci target levels that are produced a little below that swing low.

Short-Term Bullish Signal Above Today’s High

Alternatively, a sustained advance above today’s high triggers a short-term bullish signal. Gold has reached an extreme oversold condition on the relative strength index (RSI) with a reading of 1,906. Not since 2018 has gold been this oversold. Gold has been falling for most of the past 10 days as well making it more likely to be at or close to reaching an exhaustion.

Short-Term Targets if Gold Strengthens

If a bullish reversal can be sustained and prices rise gold would first be heading towards prior support around the swing low of 1,885. Higher and recent swing lows then mark the next initial targets. They include 1,893, and 1,901 (purple right horizontal lines). Certainly, a strong bounce followed by a bearish reversal that takes gold down to the 1,809-target zone is possible. We will be keeping an eye on developments related to this potential scenario. Nevertheless, a bounce off current lows could lead to a sharp rally given how oversold gold has become. At the same time, it can stay oversold longer and continue lower.

Prepare for Unexpected Outcomes in Managing Higher Risk

Volatility has picked up in other markets besides gold, such as bonds, highlighting increased uncertainty in financial markets. There are little signs that uncertainty has abated, so remain on guard and prepare for what you believe is unexpected to help manage higher risk.

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