Reversal Triggers and Momentum Thresholds
The lower swing high of $4,595 would need to be recovered for a bullish reversal signal of structure to occur. That would also trigger a reclaim of the 20-day moving average at $4,557, along with the downtrend line, which would provide signs of strengthening. A bullish reversal above the lower swing high is likely to quickly reclaim the 50-day moving average at $4,634. Also, that high is a weekly high of a three-week relatively tight range.
Falling Wedge Compression Builds Breakout Potential
During the bearish correction of the past six weeks or so, gold has consolidated in a declining consolidation pattern that takes the form of a bullish falling wedge pattern. Volatility has declined during this phase as energy builds for a breakout of consolidation. So, an upside breakout above the lower swing high of $4,595 will also trigger the breakout of the wedge. If a breakout is successfully confirmed, the lower swing highs at $4,774 and $4,891 point to initial upside targets.
On the downside, a continuation of the bearish correction, with a drop below $4,366, puts the 78.6% Fibonacci retracement at $4,262 as a target. If that occurs, be aware of the lower boundary line of the falling wedge, as it might also act as a potential support zone.
