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Gold Failed Bullish Breakout Sparks Volatility
By: Bruce Powers | June 7, 2024

• Gold's failed breakout led to a sharp selloff, breaking key supports and testing the 2,298-2,301 zone.

Volatility in gold spiked on Friday following a failed attempt to hold new trend highs reached earlier in the trading session. Notice that resistance was seen at 2,388, just under a top trend channel line. The subsequent selloff persisted throughout the day with gold breaking below the 2,315-swing low support from earlier this week. It is on track to end with a long red candle and will likely close near the lows of the day and below the prior interim swing low.



Testing Support at 50% Retracement

With the day’s low of 2,301, at the time of this writing, gold is testing support of another top trend channel line that can be combined with the 50% retracement at 2,298. That is a possible support zone and so far, it is stopping the descent. It may continue to do so in the short-term.

However, the drop today took the price of gold below the 50-Day MA, and it is on track to end Friday below it, thereby confirming a breakdown. The most recent swing low at 2,277 is a key price level as those low forms the price structure of the uptrend. If it is broken the characteristics of the trend begin to alter and the chance for a deeper or prolonged correction increases.

Failed Weekly Breakout Points to Lower Prices

Today’s price action sets up a failed weekly bullish breakout that was triggered on Thursday. The sharpest moves can come from failed patterns. That dynamic is now evident in gold as seen in today’s sharp bearish reversal. The stage is set for a continuation of a falling ABCD pattern that was confirmed by today’s drop below 2,315. An initial target is at 2,252, and the next extended target is around 2,215. Notice that the lower target aligns with a prior trend breakout area and the 78.6% Fibonacci retracement at 2,211.

The rising trend channel is also a concern. On the recent new highs gold was attempting to breakout of a rising parallel trend channel. A drop below today’s low will confirm the beginning of a breakdown back into the channel. Once that happens, the chance of an eventual drop to the lower line of the channel increases.

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