Gold Nears Psychological Resistance at $5,000
Gold extended its record run to a new high of $4,990 on Friday, as it heads towards a possible target near $5,000. This left gold in a bullish position heading into next week but also near the next potential resistance zone. A 223.6% extension target is at $4,993 and a 100% measured move points to $5,000. Given the potential psychological attraction of that large whole number, it seems likely to best tested as resistance, at a minimum before the rally exhausts.
Potential Upside Targets Beyond $5,000
If sellers can retain control above $5,000, gold has a chance to reach a higher measured move target, based on a percentage advance around $5,216. That’s where the current leg up matches the prior upswing of 34%, begun from the July low. Notice that the new high breakout off that low was followed by six weeks of higher weekly highs and lows. When using the $4,381 October high as a breakout level, gold has reached the fifth week following a key new trend high. This suggests that there could be another bullish week in gold to follow.
Support Levels to Watch for Weakening
Nevertheless, a drop below support at Friday’s low of $4,900 suggests further weakening. That could lead to a decline to test support near the 10-day average, now at $4,720 and climbing. Since gold bounced from support near the 10-day line last Friday, it should do so again. Moreover, a sustained decline below the line will show sellers gaining strength, putting the 20-day average at $4,572 and rising in sight.
Overextension Signals Higher Pullback Risk
At the bottom of the charts is an indicator to measure how for price is from the 10-period average. On both the daily and weekly enclosed charts, the indicator shows an overextended environment with the distance near a record. This means that the chance of a sharp pullback is increasing.
The further extended gold gets, the greater the chance that the retracement could be aggressive as market participants take profits more aggressively. On the weekly chart the indicator shows gold at an extreme, around 13% above the 10-day line, while the daily chart shows price 5.6% above the average.
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