As of mid-February 2025, gold prices have experienced a remarkable ascent, nearing the significant $3,000 per ounce mark. This surge has been driven by escalating geopolitical tensions, particularly trade disputes initiated by U.S. policies, and increased demand from central banks seeking to diversify their reserves. However, while the long-term outlook for gold remains bullish, several indicators suggest a potential short-term correction before the psychological resistance at $3,000 is decisively breached.
Short-Term Correction: WaveTrend Sell Signal
One of the strongest signals suggesting a possible retracement in gold is the WaveTrend (WT) Strategy, which recently triggered a sell signal. This is significant because in previous cycles, similar signals have led to short-term pullbacks before the continuation of the overall uptrend.
Key Price Action Observations from the Chart
- The current price action in the chart signals strong rejection at the $2,920–$2,930 resistance level, suggesting immediate selling pressure.
- The WaveTrend oscillator has entered overbought territory (~72) and has begun turning downward, historically a precursor to short-term corrections.
- The blue momentum wave is declining, showing weakening bullish momentum.
Potential Support Zones for Gold’s Correction
If the short-term correction unfolds, the following levels should be monitored:
- First Support Zone: $2,850 (recent minor consolidation area)
- Key Support Zone: $2,800–$2,775 (historical demand zone & key retracement level)
Understanding the WaveTrend Strategy
WaveTrend is a momentum-based oscillator that helps traders identify overbought and oversold conditions. The strategy consists of the following key elements:
- WaveTrend Oscillator (WT): This indicator oscillates around a zero line, with overbought conditions typically indicated above 60 and oversold conditions below -60.
- Buy & Sell Signals:
- A buy signal occurs when the oscillator moves from oversold territory back above the threshold, indicating a potential upward move.
- A sell signal occurs when the oscillator crosses downward from an overbought level, signaling potential exhaustion in buying momentum.
What the Current WaveTrend Signal Means for Gold
The WaveTrend oscillator recently crossed downward from an overbought level (~72), triggering a sell signal. Historically, such signals have resulted in corrections ranging from 2-5% before the uptrend resumes. This suggests that gold may experience a short-term dip toward $2,800–$2,775, which also aligns with key support levels identified by analysts.
Long-Term Bullish Outlook Despite Short-Term Pullback
While the recent WaveTrend sell signal points to a potential retracement, the broader fundamentals remain strong for gold:
- Central Bank Buying: Countries like China have been steadily increasing their gold reserves, signaling long-term institutional demand.
- Geopolitical and Economic Uncertainty: Global trade tensions, inflation concerns, and economic slowdowns continue to drive safe-haven demand for gold.
- Psychological Resistance at $3,000: The $3,000 mark is a major psychological level. It is common for markets to struggle at such round numbers before breaking higher.
Key Levels to Watch
- Short-Term Support: $2,800 – $2,775 (potential dip zone if correction unfolds)
- Temporary Resistance: $3,000
- WaveTrend Confirmation: If the oscillator returns to neutral or oversold levels and reverses, a fresh buy opportunity could emerge.
Conclusion
Gold remains in a strong uptrend, but the recent WaveTrend sell signal suggests that traders should brace for a possible short-term pullback. This correction, however, should be viewed as a healthy consolidation rather than a trend reversal. As long as gold holds above key support levels and economic uncertainties persist, the long-term outlook remains bullish. The coming weeks will be critical in determining whether gold can absorb short-term selling pressure and mount a test towards $3,000.
