Gold slips below 4,200 – Was the rally from June only three waves?

US CPI is out today, Wednesday, October 14, and markets may be a bit quiet into the numbers. Gold, however, has already given us something important to think about.

The metal has come down and made a very important overlap below 4,200, and from an Elliott Wave point of view, I think this tells us a lot. When I look at the recovery from the June lows, this overlap suggests that the move may have been only a sharp three-wave rally with an extended wave C, not a five-wave impulse. And that's an important difference for me. A five-wave rally points to a new impulse and trend continuation, while a three-wave rally is typically corrective, which means the bears are still alive.

That said, I still see the price action as somewhat neutral, with gold trapped between the 4,050 and 4,700 areas. When I see a market overlapping like this in a wide band, I personally start to think about triangles, and here I'm considering a possible running triangle.

If that count is correct, gold could stabilize now around 4,100, where I see the 61.8% Fibonacci level for wave D. From there, a wave E recovery could develop. But when I put this 4-hour structure together with the higher time frame picture, it looks to me like the bigger wave four correction from the all-time highs is still ongoing, so any rally out of the current 4-hour downtrend channel could be limited around the 4,400-4,600 resistance.

On the bigger picture, gold has been trading in an impulsive fashion, but it's now in a wave four correction that could slowly come to an end later this year. The ideal strong support for that correction is the 3,900-3,200 zone.

What does this mean in practice? I would not chase gold lower here, but I'm also not in a rush to buy aggressively. Triangles are patient patterns; they take time, they frustrate both bulls and bears, and the best opportunities usually come when the pattern is close to completion.

The levels I'm watching:

• 4,200 – the overlap that turned the picture more corrective
• Around 4,100 – the 61.8% Fibonacci area for possible wave D support
• 4,400-4,600 – resistance for a wave E recovery
• 4,050-4,700 – the broader range gold is still trading in
• 3,900-3,200 – ideal strong support for the bigger wave four

With CPI on the calendar, a sharp move in either direction wouldn't surprise me, but as long as gold stays within this range, I'll keep treating it as a sideways, corrective structure rather than a new trend.