Gold (XAU/USD) declined as much as 6.9% recently, after hitting a swing high of 1,307.6 three weeks ago. That high was right in the area of the 127% AB=CD extension (1,302.8), and the 78.6% retracement (1,299.7) of the downtrend measured from the 1,345.3 peak.
So far, support was found at 1,217.2, right in the area of neckline support of the Inverse Head and Shoulder pattern. The probability that the retracement may be complete for now is increased by the fact that there is also the confluence of two Fibonacci retracement levels in the same price area. Both the uptrend measured from the bottom of the head (50% at 1,219.9) and the uptrend from the bottom of the right shoulder (61.8% at 1,221.2) indicate support in the same general price area.
Alternatively, if the recent low is broken to the downside, watch for support at the next area of Fibonacci confluence, 1,199.1 (61.8%) to 1,197.1 (78.6%).
If gold is able to rally from current levels, it has a good chance of getting up to at least the Head and Shoulders target, which is at 1,345.6. That price area is right in the area of the July 2014 peak. However, it first will need to get over the 1,307.6 peak.