The breakdown does not follow
Price behavior around the flag raises the question of whether the flag will prove to be a valid pattern. Like all consolidation patterns, they can evolve and change into larger or different patterns. A bear flag remains, but if gold closes above the 20-day line, it has an opportunity to strengthen further.
Therefore, a rally above the current high of 2,614 could see gold retest resistance around the recent daily highs of 2,632 or the 50-day MA at 2,668. A rally above and subsequent daily close above the 50-day line would have to occur for gold to continue rising. Also, there is a small swing low pivot at 2,666 and it can be viewed the same way as the 50-day line.
Bouncing possible
Confirmation of the flag failure would be indicated by a drop below the current low of 2,614, and even more so by a drop below the bottom of the flag at 2,605. A 61.8% Fibonacci retracement of the short bounce completed at 2,607, leading to the jump that formed the flag. The next lower support zone is around the most recent swing low of 2,537.
If that price area fails to hold and reverse a decline, the next lower target zone falls around 2,473. It includes the 61.8% Fibonacci retracement of the upswing that started from the May low, two trendlines and the target for a bearish ABCD pattern (D). The two trendlines to watch are the lower descending parallel channel line and an ascending trendline.
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