Gold’s bullish momentum continued on Wednesday, as the precious metal hit a new all-time high of $2,882. However, after reaching this record price, gold faced resistance and began to pull back, currently trading around $2,861. During its upward move, gold surpassed key targets at $2,856 and $2,874, before encountering resistance just shy of the next target at $2,889.
The rally appears to be following a harmonic ABCD pattern, with the price move from a recent low of $2,537 (A) creating an extended target of $2,889. While this harmonic pattern was completed, the subsequent price stall signals a potential pause or correction, as is typical when resistance is met after such a strong advance.
Overbought Signals and Potential Correction
Gold’s recent rise seems to have gone into overbought territory, pointing to the likelihood of a price correction. The Relative Strength Index (RSI), a key momentum oscillator, hit a reading of 76.50, signaling that the market is in an overbought condition. This is similar to the overbought reading of 77.24 observed during a smaller rally in late September 2024. Historically, such overbought conditions have often led to pullbacks, which could be an indicator that gold’s price is due for a breather.
Resistance and the Potential for Retracement
Despite the strength in Wednesday’s rally, prices can only rise so far before encountering natural resistance and undergoing a retracement. The current rally, which has already reached an 11.6% increase from the $2,582 low (C), is stronger than the previous six rallies, which peaked at 8.6%. However, this recent 11.6% rally falls in line with earlier, larger moves between 10.6% and 17.8% following the October 2023 lows, suggesting the potential for continued bullish momentum.
While resistance is expected at these elevated price levels, the extent of the pullback is uncertain at this stage, as the market has not yet shown clear signs of weakness.
Key Support Levels
If gold’s price drops further, key support levels will come into focus. The immediate support level is around $2,840, which marks the low of the day’s intraday pullback. Should this level break, the next significant support zone lies at $2,790, which corresponds to the recent breakout level. Additionally, the low of the week at $2,772 will serve as another key level to monitor for signs of weakness.
Overall, while gold’s long-term bull trend remains intact, the current overbought conditions and potential resistance levels suggest that a price correction is imminent. Investors should be vigilant of these key support levels and remain mindful of the possibility of a pullback before the next leg of gold’s rally unfolds.
Conclusion
In conclusion, while gold’s strong rally to record highs indicates a continued bullish trend, overbought conditions and resistance levels suggest that a short-term pullback is likely. The completion of the ABCD pattern and the elevated RSI signal the potential for a price correction. Key support levels at $2,840, $2,790, and $2,772 will be crucial in determining whether the correction is temporary or marks a more significant retracement. Despite the possibility of a short-term dip, gold’s long-term outlook remains positive, supported by factors like central bank demand, geopolitical tensions, and ongoing monetary expansion. Investors should closely monitor these technical indicators and support levels to assess the next steps in gold’s market trajectory.
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