Gold’s Fall (and Recovery?) [Elliott Wave]

Executive Summary

• Trend Bias: Gold (XAUUSD) appears to be nearing the ending stages of wave y of (ii) lower.
• Gold is currently trading below the 200 Day Simple Moving Average.
• Failure to hold current levels may imply a retest of $4,099.

Gold has been correcting lower since a near-term top developed on April 17. The wave count appears mature and RSI divergence is showing up hinting that a bullish pivot may be nearby.

Current Elliott Wave Analysis

The current Elliott wave count for gold shows the yellow metal is in wave y of (ii), a corrective dip.

This wave (ii) is correcting the rally from March to April. When modeled out, wave (ii) would hold above 4,099 so as not to break any of Elliott’s rules. Prices have reached the 78.6% Fibonacci retracement level of the wave (i) rally. This fib level sits at 4,257 and is viewed as the support of last resort. 

There is another wave relationship near 4,185 where wave ‘y’ would be 1.618 times the length of wave ‘w’…a common relationship.

If gold prices continue to fall through these two support zones, then likely continues to retest the 4,099 support from March.

We are cautiously viewing this decline as a wave (ii) partial retracement of wave (i). However, with gold prices currently trading below the 200 day simple moving average, it is possible that a larger correction is unfolding that falls below 4,099.

This is the end of wave (ii), then wave (iii) would be a strong rally that pushes up to retest all-time highs. In the meantime, a rally above 4,515 would signal that wave (iii) may be underway.

Bottom Line

Gold appears to be declining in wave y of (ii), a larger bearish double zigzag pattern. The pattern is mature and is nearing its end, possibly in the 4,185 – 4,257 price zone.

If this is correct, then gold would rally from that bullish reversal zone to retest all-time highs. In the unexpected event of gold prices pushing below 4,099, then we’ll need to adopt an alternate wave count.