Gold (XAUUSD) Price Forecast: Bullish Signals Emerge After XAU’s 10% Correction

Gold continues to try and confirm a bottom from Thursday’s low of $3,121. That low completed a $379 or 10.8% decline from the recent record high of $3,500 that was reached in April. On Friday, gold triggered a potential one-day bullish reversal and established a higher daily high of $3,252 and higher low at $3,154. The breakout was not confirmed though as gold is set to close with a loss for the day and well below yesterday’s high. Nonetheless, these are signs of strengthening and they reflect slowly improving demand.

Signs of Solid Support

The price area around this week’s low is marked by several indicators showing that it may have some significance. The bottom line of a rising trend channel is close to the low and aligns with the lower line of a shorter falling channel. In addition, support was successfully tested around the 50-Day MA, now at $3,162. Also, a descending ABCD pattern reached its 100% target nearby at $3,140. Since the lower rising trendline and 50-Day MA mark dynamic support for the rising trend, a bullish reversal from those price areas indicates that the trend remains intact and can be anticipated to continue unless negated by bearish reversal signs.

Above Friday’s $3,252 is Bullish

A rally above today’s high of $3,252 will be a sign of strength and indicate that gold may be ready to test higher price levels as resistance. Since the lower end of a declining trend channel was reached this week, there is the potential for an eventual rally to the top declining trendline of the channel. However, first there is the 20-Day MA that marks potential resistance. It needs to be reclaimed before higher prices are possible. The 20-Day line is currently at $3,302.

Drop Below this Week’s Low of $3,121 is Bearish

Regardless of the potential for support to be retained at this week’s low, a drop below $3,121 could start to change that. A sustained decline below $3,121 would show the beginning of a possible failure of the near-term bull trend (from September swing low). Certainly, given the recent sharp advance in gold to new record highs a correction and possible consolidation would be appropriate before it is ready to move higher. As of now, it looks like consolidation would be contained within the falling channel.

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