Rejection at Resistance

The recent swing back from $3,886 swing low last week found resistance near the 10-day average, resulting in rejection over three days. Today’s high of $4,006 made another attempt but instead resulted in the second consecutive day of lower daily highs and lows. The behavior formed a small bear flag pattern and a breakdown triggered today. If the breakdown continues lower, prices will likely be challenged before sustainable support is found.

Dynamic Resistance Confirmed

The behavior of gold near the 10-day average resistance confirmed underlying selling pressure as it fell below the 20-day average, reflecting bearish momentum. Once prior dynamic support becomes resistance the bear trend (pullback) is indicating it may be ready to continue. That was confirmed today with the breakdown from the bear flag. A drop below $3,915 will further confirm selling pressure and put the $3,886 at risk of failing as support.

Downside Targets

An initial downside target is highlighted by the confluence of two indicators generating a potential support zone around $3,846 to $3,844 consisting of a 50% retracement and 50-day average, respectively. In addition, there was a short three-day resistance zone during gold’s rise that also marks a similar potential support area. If that zone fails to hold then the 61.8% Fibonacci retracement at $3,720, along with the centerline of a rising trend channel, becomes the lower target.

Long-Term Support

Since the bull trend accelerated in late August and reclaimed the 50-day average it has not been approached as support. This would be the first time that this happens and therefore support is expected to be seen. However, keep in mind that the 50-day line is rising and therefore it could be above the 50% retracement before it is reached.

Outlook

Below $3,915 targets $3,846 but today’s bearish signal confirms on a daily close below the lower boundary line of the flag. The bear flag and 10-day resistance favor sellers. Watch the 50-day convergence zone — holding keeps the trend intact, while a break risks the 61.8% retracement. Today’s action leans bearish until $4,006 clears – today’s high.

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