Failed Bull Breakout

This week’s drop confirmed a failure of a bull pennant pattern. Since it is a trend continuation pattern, a breakdown shows a weakening of the near-term uptrend and the potential for a correction greater than what was seen most recently. Gold is now below the 50-Day MA, with the 200-Day MA becoming a possibility. The 200-Day line is currently at $3,003.

Target Around $3,072

The first pullback from the $3,500 record high reached in April was an approximate match with the 38.2% Fibonacci retracement and a successful test of support at the 50-Day MA. A falling ABCD pattern points to a possible minimum downside target of $3,072. That would exceed the 38.2% level at $3,139. Notice that the 50% retracement target is a little lower at $3,041. So, the $3,072 to $3,041 levels can be seen as a potential zone of support.

Bearish Until $3,334 Reclaimed

A sustained rally above $3,334 would be needed before there were signs of a potential failed breakdown. Moreover, moving averages are in the process of confirming bearish indications. Both the 20-Day and 50-Day MA have converged with the trendline at the bottom of the pennant and will be crossing below the line. They also show potentially strong resistance.

Weekly Bearish Confirmation

The weekly chart confirms the bearish potential for gold short-term as a bearish shooting star candlestick pattern triggered earlier in week and led to a four-week low of $3,268. A three-week lower close looks likely this week as the sellers remain in charge on a weekly basis. But on the weekly chart gold is at a potentially significant support level as the low for the week hit the 20-Week MA for the first time since it was reclaimed in January. This is one of the reasons to also consider a bullish scenario regardless of how clear the bearish side looks.

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