Gold (XAU/USD) Price Forecast: Breakout Fails, but Setup Remains Bullish

Bulls Remain in Charge

Nonetheless, the bulls remain in charge but within a pennant consolidation pattern. This week’s minor pullback reached a low of $3,320, which was a successful test of support around the 50-Day MA and a short downtrend line. Today was the second day in a row that support was retained. Whether there is a slightly deeper pullback before a new rally attempt remains to be seen.

But an overall bullish outlook would not start to change until there was a decline below an interim swing low at $2,283. And the lower boundary line for a bullish pennant pattern may be significant as a drop below it gives a bearish signal and the possibility of a failure of the bull pennant.

Lower Volatility Leads to Higher Volatility

Volatility in gold will likely remain muted until there is a breakout of the pennant consolidation range. Look at the monthly chart (not shown) for a clearer view of the contraction in volatility over the past few months. These areas of trend, where the trading range contracts over time, can often lead to fast-moving markets. Gold’s monthly chart is interesting as May through June (to date) are inside months relative to April and July is inside the range of June. A pennant breakout triggers above the top pattern boundary line, but a more convincing signal occurs above the swing high at $3,451 (B).

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