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Since trend support, represented by the 50-Day MA, was seen around the swing low of $3,121 that was established last week, the bearish correction could be complete. The integrity of the near-term uptrend, as represented by the 50-Day line, was retained during the correction. Therefore, the expectation is that the uptrend will attempt to continue towards higher prices. That expectation is retained for now if gold stays above the 50-Day. How it progresses though, remains to be seen.
Strong Support Indicated
Gold has formed a small declining trend channel since the record high of $3,500 was reached on April 22. It takes the form of a falling ABCD pattern that reached its initial downside target at $3,140 last week. That further established potential support around the 50-Day line. There is also an uptrend line nearby that is the lower end of a rising trend channel (blue). Also, marking an area of potential support in the same price zone.
Moreover, the low day of the bearish pullback almost touched the line before buyers took back control. That is close enough for a successful test of support around that trendline. The recent pullback followed a failed bullish breakout of the rising trend channel (blue). A decline to test support around the lower channel line is typical behavior. Once that process is complete, gold should be ready to move to the next phase.
20-Day MA Resistance is Key Short-term
The 20-Day MA represents a key near-term resistance area, as it previously represented an area of support. In the beginning of May, a short pullback found support around the 20-Day line, and it was followed by a bullish reversal. Downward pressure remains if gold stays below the 20-Day MA. However, if it can be reclaimed a rise toward the top of declining trendline looks possible. The crossover of two trendlines at $3,375 marks a price level near the downtrend line. Note that is further confirmed by the 78.6% retracement, which is close at $3,371.
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