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Gold price forecast: gold breakdown pivots back for resistance test

Overnight, gold has found support and wiggled back for a resistance test at a prior support zone.

Source: Bloomberg

It’s been a busy summer for gold prices. The yellow metal came into the season with a bit of hope. Prices had found a low in mid-May and buyers were starting to take-control, bidding prices back-above the 1800 psychological level and, eventually, up for a test of confluent Fibonacci resistance around the 1880 level.

But, as shared then, that recovery was un-even, and price action built into a rising wedge formation. Such formations are often tracked with the aim of bearish reversals – and reverse it did. A slalom developed in price action in mid-June and largely continued into the second-half of July. All the way until support came into play around the 1680 level. That’s a big price, as it’s now been tested on three separate occasions since gold topped-out in the summer of 2020.

That support test led to another strong topside run. But, again, the move was uneven, and price built into a rising wedge formation.

That one began to breakdown earlier this month and last week was particularly painful, as gold prices sold off each day Monday-Friday. That weakness ran through this week’s open, with price moving all the way down to 1740 before starting to bounce.

Gold eight-hour price chart

Source: TradingView

Gold short-term

On a shorter-term basis, we now have a resistance test at prior support, in a zone marked by two Fibonacci levels that creates a bit of confluence. This zone runs from 1763-1771, and there’s already been a response from sellers. A hold of resistance below 1763 through the end of today would keep the door open for bearish continuation potential, although that may be a bit early. Looking-higher on the chart, and there may be more attractive spots for lower-high resistance, such as a test of 1771 or, perhaps even the support-turned-resistance that’s at 1785.

Gold four-hour price chart

Source: TradingView

The bigger pricture

Taking a step back on gold and we’re in a range. This range has been holding since Gold topped-out in 2020 and pulled back to support at 1680 in early-2021.

Given fundamentals, I’m biasing this range in a bearish fashion but that doesn’t come alive until sellers are finally able to test through support. If, and this is a big if, sellers can hold the line here, we may end up with that fourth support test in the 1680 area, and that test may finally allow for a bearish breakdown.

In the meantime, gold price action is essentially working within pre-defined technical criteria produced by this past two-plus years of range-like price action.

Gold weekly price chart

Source: TradingView

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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