- Gold continued its rally on Wednesday, breaking above Tuesday’s shooting star and eyeing $4,200 as the next target.
- Despite bullish momentum, resistance near $4,400 and lighter volume warrant caution against overextension or a potential reversal.
Gold continued to rally during the trading session here on Wednesday, breaking the top of a shooting star from the Tuesday session. This is a very bullish sign, and now we are starting to look at the $4,200 level as the next potential target. The gold market has been very bullish for quite some time, but it's worth noting that we sold off quite viciously in what looked like a distribution. The problem we have now is that there's no real confirmation until we break above the recent high, which is $4,400.
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After all, if we fail at $4,200 and turnaround from here, that would be a classic topping pattern where you get a higher surge, a drop, followed by another attempt to go higher, but then a failure. We are on the precipice of doing something rather large, but the question at this point in time is what that thing is going to be. As things stand right now, it's pretty much impossible to start shorting this market, so that's certainly not something that I'll be doing.
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At the same time, we still haven't cleared that massive sell-off and, perhaps more importantly, that massive volume that collapsed at the $4,400 level. If we do turn around and break down from here, the 50-day EMA for me is a signal to start shorting for a longer-term move. Ultimately, this is a scenario where we can probably just go back and forth and try to build up a little bit of confirmation of acceptance of price, and that might be the way forward.
I don't want to see gold go parabolic again—that is trouble just waiting to happen. Rather, you want to see a nice and controlled move to the upside. Over the last three days, it's been a little bit impulsive, but it hasn't been out of control. I would point out that volume is still a lot lower than it was at the top, so a little bit of caution is probably warranted. If you see a long position start to go against you, be prudent and get out quickly if necessary.
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