Is gold set for a ‘sympathy bounce’ towards 1900?

It was a tough end to the week for gold bugs which saw the yellow metal plunge 5% from its YTD high. Yet support was found just above the 50-day EMA, and two inverted hammers (with slight bullish closes) show that bearish momentum is waning.

 

It looks as though gold is trying to drift higher as part of a countertrend move against its NFP losses. Yet I am not yet convinced that this is the low of the bearish cycle.

 

Gold rallied an impressive 21% since its November low with little in the way of a pullback, and this bad spell could be an A-wave of an ABC correction (and potentially now drifting higher as part of a B-wave). And what could help lift if further is the fact the Jerome Powell was not as hawkish as expected, given the strength of the employment report. And that could allow for the USD to pull back and gold rise, as we approach key inflation data next week.

 

For now, I suspect gold is headed for $1900 a level which could cap as resistance due to its round-number status (Also note that the monthly and weekly pivot points reside around $1900). If so, bears could reassess its potential for a swing high and next leg lower, as part of a C-wave.

 

Interestingly, the 100% projection of the initial A-wave from a $1900 pullback sits around $1800 – just beneath the August high. So that could provide a decent reward to risk ratio for bears if gold tops out around $1900.