Gold stalled its ascent following two strong days of gains and a bull flag breakout. On Wednesday, the precious metal rose slightly above Tuesday’s high to $3,439 before sellers took control. Trading continues in the lower half of the day’s trading range, at the time of this writing, and gold looks likely to close in a similar weak position for the day. The day’s low of $3,360 is short-term support and a drop below that price level may lead to a test of lower potential support levels.
Tuesday’s low for the day was $3,323 and it provides another potential support level. However, it is part of the price structure of higher daily highs and higher daily lows that began on Monday following a successful test of support around the 20-Day MA. Therefore, a drop below $3,323 would provide a caution sign for bullish momentum.
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Trend Continuation Signal Points to Higher Prices
A breakout of a bull flag pattern triggered on Monday, and it was decisive, with a strong daily close near the highs of the day. The follow-through day on Tuesday showed continued strength and ended with a daily close near the highs of the day. A rest day as seen today is normal and healthy for the trend and the potential of the breakout, if it doesn’t lead to further stalling behavior. Ideally, signs of strength continue to accompany a rise in the price of gold. Despite the strong bull flag breakout, the pattern needs further confirmation of strength, or it could morph into a different pattern.
Strong Bullish Momentum Prior to Flag
The bullish expectations presented by the flag formation are driven by the sharp rally following the early-April swing low that proceeded with the flag. When adjusting for the start of the flag formation to the high of April 8, a potential minimum target of around $2,789 is derived by calculating the measuring objective of the pattern.
New High Targets
If an eventual breakout above the current record high of $3,500 could be sustained, there are two lower price targets that would need to be cleared before gold had a chance to reach the flag target. First, there is a 127.2% extension of the recent bearish correction at $3,581. That price zone is then followed by a range from $3,663 to $3,684.
Source: Fxempire
