Gold had rallied through $1763 yesterday, before reversing lower again. The yellow metal is trading around $1751/52 as we prepare this article and is expected to drop further as long as $1765 remains intact. Immediate support on smaller time frames id $1740 and $1720 respectively, and a break lower would add further confidence on the bearish setup.
Alternately, a break above $1765 would change the existing bearish setup at least for the short term. We would re-analyse the counts and allow clear price action to develop before coming to a decisive plan. The long term structure would still remain bearish, as explained below.
Gold had rallied from $250 through $1920 in an impulse wave. Ideally, an impulse is followed by a 3 wave corrective structure. The most common corrections are Flat (3-3-5) and Zigzag (5-3-5). Please note that the drop between $1920 and $1046 was an impulse, 5 waves. Hence, the corrective structure unfolding is that of a zigzag.
It means Gold is on its way to produce a 5-3-5 corrective structure. It also confirms that the yellow metal should remain below $1920 and print below $1046 to complete the pattern. Digging further into the larger degree wave counts, the drop between $1920 and $1046 could be labelled as Wave (A).
The subsequent rally towards $1765 was in 3 waves, labelled as Wave (B). If the larger wave counts hold well, Gold should be preparing to drop lower below $1046 as Wave (C) progresses. Yesterday’s intraday high could be a lower degree wave 2, which has tested previous swing highs.
If prices manage to stay below $1765, a sharp bearish reversal awaits for Gold.
Short against $1765, targeting below $1650, $1579, $1450 and lower.
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