Gold markets have drifted a little bit lower during the trading session on Wednesday again, but it’s probably worth keeping in mind that every time the market has pulled back over the last several sessions, there have been people willing to step in and buy it. However, it does not take a lot of imagination to see a potential “rising wedge” forming.
Perhaps the most important thing about this potential rising wedge is that the market has been overbought for quite some time, essentially going parabolic recently. There has been a rush to protect wealth, which in this environment does make a certain amount of sense. However, markets cannot go in one direction forever so it should not be surprising at all if we do in fact pull back.
Looking at the Relative Strength Index, it is starting to diverge from price action, pulling back from the overbought condition, showing the perhaps we are in the midst of a correction. A correction would actually be very healthy for the bulls, as it could attract more buyers down the road. As things stand right now, there seems to be significant support near the $1830 level, but one would have to suspect that there are plenty of people between here and there that are willing to step in as well.
The 50-Day EMA sits right around the $1825 level and is rising, so that could come into the picture as well. When you look at the charts from the longer-term, you can see just how influential this indicator can be at times.
On the upside, gold is very likely looking to test the $2000 level over the longer-term, and there’s nothing on this chart to suggest that won’t happen. That being said, it does look a little bit stretched and there are signs in the currency markets that the US dollar is starting to put up a fight as well, which could kick off the negative correlation between the two assets.
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