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Gold prices have made little net progress over the past four months. Little net progress is typical of a corrective consolidative move. Gold prices, as of today, are still less than a 38% retracement of the December 2016 to February 2017 up trend. A shallow retracement of that nature suggests the longer term bull trend from December is not quite over.

Fed fund futures are pricing in a 100% probability of a rate hike by the Fed in June 2017. Read our Q2 Gold forecast and see how interest rate hikes may affect gold prices.

Using Elliott Wave theory as a model, the sideways correction that began February 27 is likely a ‘B’ wave. Two higher probability patterns is that we are in a ‘B’ wave triangle or a ‘B’ wave flat pattern. Both patterns imply the same thing in that a bullish resolution eventually takes place. The start of the next bull run depends on which pattern (the triangle or the flat) emerges.

Gold Prices Find Support; Will the Down Trend Continue?

In the chart on the left side, this illustrates how the triangle pattern would play out. The key level for this pattern is $1194.86 to the downside. A break below this level negates the triangle as a pattern. So long as prices remain above $1194.86, the potential for gains back towards $1260 is high.

In the chart on the right side, this illustrates the flat pattern. The length of proposed wave ‘c’ has already exceeded wave ‘a’. As a result, if the flat pattern emerges, prices likely test and mildly break $1194.

Under both scenarios above, we consider a break below $1122.51 to be lower probability. As a result, we anticipate another bull run may begin near $1215 or $1184.

The sentiment picture for gold leans towards a more bearish case. As we speak, sentiment bears a +4.1 reading where 81% of the traders are net long. This sentiment reading has grown suggesting the potential for more losses. See how live traders are positioned and learn how to trade with sentiment with our IG client sentiment guide.

---Written by Jeremy Wagner, CEWA-M

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

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Read the recent EUR/USD Elliott Wave article.

Read the recent GBP/USD Elliott Wave article.

Read the recent USD/CAD Elliott Wave article.