Current Market Scenario:
Gold has recently hit a significant milestone in its bullish journey, reaching the target zone for Wave 3 between $2,362 and $2,718, as outlined in the Elliott Wave structure. This marks the culmination of an extended rally, but key indicators are pointing towards an impending correction.
The Elliott Wave Theory suggests that Wave 3 is typically the strongest wave in a five-wave impulse structure, and after completing this powerful upward movement, markets often experience a corrective Wave 4. Several signals in both technical indicators and chart patterns reinforce the likelihood of a reversal.
Wave Structure Breakdown:
- Wave 1: This initial upward wave laid the foundation for the bullish cycle and set the stage for the subsequent moves.
- Wave 2: A correction that followed Wave 1, which brought the market back to a support zone before starting Wave 3.
- Wave 3: The strongest, most impulsive wave, which drove gold prices to $2,500+. This wave exhibited powerful momentum, but it is showing clear signs of exhaustion as we approach the top of Wave 3.
Now, Wave 4 is expected to begin. Based on Fibonacci retracement levels and technical patterns, we anticipate a retracement into the range of $2,219 – $2,000.
Key Technical Indicators Supporting the Analysis:
- Bearish Divergence: One of the strongest indicators suggesting an upcoming correction is the bearish divergence on the RSI (Relative Strength Index). Despite higher highs in price, the momentum indicator has been showing lower highs, indicating waning bullish strength.This divergence suggests that while the price has been climbing, fewer market participants are pushing it higher, signaling a potential exhaustion in the current uptrend.
- Rising Wedge Pattern: On the weekly time frame, gold is showing a rising wedge pattern. This technical formation typically occurs after an extended rally and often signals a bearish reversal. The wedge represents a narrowing price range, indicating that buyers are finding it more difficult to push the price higher.
- Momentum Slowdown: As gold has climbed into the Wave 3 target zone, the momentum has visibly slowed. This deceleration is typical before the beginning of a corrective phase, aligning with the completion of Wave 3.
Price Targets and Projections for Wave 4:
Given the overall wave structure and Fibonacci levels, Wave 4 is projected to retrace to a significant support zone. Fibonacci levels are key in determining how deep the correction might go:
- 0.382 Fibonacci retracement: $1,991
- 0.5 Fibonacci retracement: $2,105
- 0.618 Fibonacci retracement: $2,219
This suggests that the correction in Wave 4 is likely to take gold to the $2,000 – $2,219 range before resuming its bullish trend in Wave 5. A retracement to these levels would not break the overall bullish trend but instead would provide a healthy correction before the next leg higher.
Larger Trend Context:
The current structure is part of a long-term bullish trend for gold. Once Wave 4 completes, Wave 5 is expected to push prices even higher, potentially beyond $2,700. However, before this upward move can take place, the market needs to cool off and reset through a correction.
Conclusion:
Gold has reached a critical juncture after completing Wave 3 in the Elliott Wave structure, and the market is showing clear signs of an impending correction. The bearish divergence in momentum indicators, combined with the rising wedge pattern, strongly suggests that Wave 4 will begin soon, with a likely target zone between $2,219 – $2,000.
This correction should be seen as a natural and necessary phase in the larger uptrend. Once Wave 4 finds support, the next significant move in Wave 5 could bring new highs, potentially pushing gold to levels above $2,700.
Investors and traders should prepare for volatility in the near term, but the long-term outlook for gold remains bullish.