Failure of Breakouts Raises Correction Risk
The near-term bearish signal is the first sign of a possible failure to sustain the recent breakouts above the long-term trend indicators, the 100-day moving average and the top channel line. If further confirmed, it could result in another sharp decline to test potential support levels. Despite the lower target zone, following a reversal signal below $4,640, gold would likely first move toward a potential support zone around $4,351. That area has acted as both support and resistance over the past six months. Price behavior around that zone will help determine whether a deeper correction is warranted.
Retest of 50-Day Resistance Reinforces Bearish Case
An initial upside objective for gold was met last Friday with a high of $4,890, marking a successful test of resistance near the 50-day moving average. It also sits just below the 61.8% Fibonacci retracement at $4,901. Since the 50-day average was reclaimed in August it had effectively marked dynamic support for the bull trend, until it broke in mid-March. Now, with the recent breakdown triggered, Friday’s high appears to have completed the first swing back to test it as resistance. Once that occurs, the larger bearish correction may be positioned to resume.
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