Gold Completes Wave Two, Sets Sights on Wave Three Breakout

Gold had its first sizable gain since hitting a peak of $4,755 on August 25th. In those brief 6 trading days, gold futures experienced 3 days of extreme selling pressure separated by a doji candle between each decline; together, those 8 trading days add up to a $425, or 8.95%, loss in value (from the Aug. 25th high to today’s low), forming our wave 2. The charts tell us that we just started our third motive wave, with buyers stepping in with force and daily volume at its highest level for an up day since the second wave began.

Today, December futures gained a respectable $58 (1.38%), hinting at bulls taking charge, which could lead to the next motive wave in the current bullish wave count. Wave 1 began at the lows around $4,019 (in Dec. futures) and ran up to the Aug. 25th highs, stretching $736 over a period of 39 trading days. Wave 2 has most likely concluded, extending from the prices listed above ($4,755 to $4,392).

The doji candles that punctuated each leg of the decline deserve a closer look. A doji forms when buyers and sellers fight to a standstill, opening and closing a session at virtually the same price despite meaningful movement in between. Seeing three of them wedged between the down days, rather than one uninterrupted slide, is itself telling: it suggests sellers never fully took control, and that each new leg lower needed a fresh burst of conviction to keep going. That kind of stair-step, hesitant decline fits a corrective wave 2 far better than it fits the start of a new bearish trend, and it lines up neatly with the bullish wave count we have been tracking since the $4,019 low.

If this interpretation proves correct, we should see gold rise to at least $5,061. Along the way, gold must overcome several levels of resistance, the first being the 100-day SMA; of all the possible resistance levels ahead, this one should pose no real challenge for gold to move above. The level above that has a real chance of slowing gold’s advance. It is composed of historical tops and bottoms dating back to Dec. 2025, as well as gold’s current 38.2% Fibonacci retracement, which sits at the same price point of $4,474.

That wave 2 carried past the shallow 38.2% mark and into deeper territory before buyers stepped back in is not, on its own, a concern. Corrections in the 40% to 50% range of wave 1 are common and still leave the larger bullish structure fully intact, so long as price turns higher again before threatening the origin of wave 1. Under Elliott Wave rules, a second wave can never retrace more than 100% of the first wave, so a decisive break back below the $4,019 low would invalidate this count altogether. That level remains far below the current market and simply serves as the line traders can use to define their maximum risk on this idea.

If gold can overcome the 38.2% retracement, there would be very little doubt that gold is in a third wave of a bullish wave count. This is the level to watch, along with daily volume. If we see volume continue to climb along with price, then it would be safe to assume that the bulls are back in the rodeo and the bears have returned to the circus, setting up a very favorable technical outlook for traders looking to enter gold from the long side.

Third waves have earned their reputation among Elliott Wave practitioners as the strongest and most decisive of the five-wave advance, typically extending well beyond the length of wave 1 and doing so with fewer and shallower pullbacks than either wave 1 or wave 5. If this wave 3 behaves true to form, the rally off the wave 2 low should continue to be accompanied by expanding volume and relatively brief dips, rather than the choppy, doji-laden action that defined the correction just completed. For now, the $4,474 resistance zone and the $4,019 invalidation level are the two most important markers on the chart, and how gold behaves around them in the sessions ahead should go a long way toward confirming, or challenging, the wave count outlined here.

Wishing you, as always, good trading,