Gold Price Forecast: Faces Correction Risks After Record High Reversal

Gold reversed on Thursday from a new record high of 2,790 that was reached yesterday. The decline reached a three-day low of 2,732 before stalling. At the time of this writing gold continues to show weakness and will likely close in the lower third of the day’s trading range. Today’s bearish price action increases the risk of a deeper pullback before the bulls take back control as it shows the early signs of a failed breakout, at least for now.

Signs of Weakness

Today’s pullback fell below the prior trend high and potential near-term support at 2,758, as well as the top channel line of a rising parallel trend channel. Each failed to show signs of support. Notice how resistance was hit around that line almost every day last week, indicating the market recognized the prices represented by the line. An additional sign of weakness was indicated by a drop below a short-term uptrend line across the lows of the past couple of weeks. A daily close below the three-day low of 2,740 today would provide additional evidence of weakening demand.

2,696 is Primary Lower Target

If gold keeps falling it looks very likely heading to test support around the 20-Day MA at 2,696. The line has represented an area of trend support since it was recaptured on August 9. Therefore, a decisive drop below it would indicate a possible change in character. The fact that it has been tracking the internal uptrend line closely more recently also indicates its potential near-term importance. It is currently identifying a similar price to 2,686, the top of the flag, which triggered the most recent more significant upside breakout.

If 20-Day Line Fails, 50-Day Line May be Next on Agenda

There is also the possibility that the correction takes on greater significance by falling below the 20-Day MA and staying there. In that case, the next lower target would be the 50-Day MA, now at 2,650, along with the associated uptrend line. The 50-Day line is aligned with the next lower uptrend line. That line is also the lower part of a rising parallel trend channel. The top line of the channel is a copy of the lower line that has largely matched the 50-Day MA since August 5.

For a look at all of today’s economic events, check out our economic calendar.