Gold price dropped after a parabolic spike we discussed in my last article. This isn't just a minor pullback; it's the first real sign of weakness the market has shown after a historic rally.

Let's break down what the H4 candle tells us and what it likely means for October.

The Signal: A sharp, strong bearish candle breaking below a key psychological level. We're looking at a clear rejection from the $3900 area and a break below a key short-term support level.

Topping Pattern Formation: The failure to hold above $3870 and the subsequent sharp drop below $3793 forms a clear lower high and a lower low on the H4 chart. This is the first concrete technical evidence that the parabolic uptrend is exhausted, at least for the short term.

The "Bull Trap": The spike to $3870/$3900 likely trapped a large number of late buyers (FOMO retail traders) who saw the new high as a signal to buy. The powerful down-candle has now trapped these buyers in losing positions, creating immediate selling pressure as some look to exit.

Key Support and Resistance:

New Resistance: The $3870 - $3900 zone has become the new, formidable resistance. Any rally back to this area will likely be sold aggressively.

Critical Support: The next major support level to watch is much lower. Based on the scale of this rally, a 38.2% or 50% Fibonacci retracement of the entire up-move would be a logical target. This could be in the $3600 - $3550 region. A break below $3793 opens the path directly to this zone.

Prediction for Gold in October

Base Case (70% Probability): A Bearish October

I expect October to be a month of consolidation and correction. The initial, violent phase of the sell-off is likely to continue, pushing prices down towards the $3650 - $3600 support zone. This will not be a straight line down. We will see sharp counter-rally bounces (likely back towards the $3820-$3850 resistance area), which will be sold into. This creates a choppy, downtrending channel. The primary driver will be profit-taking from the historic rally and a reassessment of the extreme bullish sentiment. If this aligns with a temporary strengthening of the US Dollar or a slight uptick in bond yields, the downward pressure will intensify.

Bullish Case (20% Probability): The Blow-Off Top Resumes

If the fundamental catalyst that drove the parabolic move intensifies (e.g., a dramatic new geopolitical event or a sudden, severe banking crisis), the sell-off could be very brief. Price could reclaim the $3900 level and make another run towards $4000. However, this is the lower probability scenario. The technical damage from this H4 breakdown is significant and needs time to repair.

Neutral Case (10% Probability): Sideways Chopfest

Price could enter a wide, volatile, and directionless range between, say, $3750 and $3880, as the market digests the move and waits for the next major fundamental cue.

Traders insight Selling rallies?

On a sell, the first touch of $3650 might produce a bounce, but I would only consider a small, tactical long trade there with a very tight stop, looking for a bounce back into the range. My confidence in buying would be much higher near $3550.

Patience is Key: The easy money has been made. October is likely to be a trader's market, requiring patience to wait for the right setups and strict risk management to navigate the volatility.

The Bottom Line:

The spell is broken. The parabolic rally on H4 has snapped, and the market may now enter a corrective phase. The path of least resistance for October is down. The strategy is to align with this new short-term trend by selling into strength, while being fully aware that the long-term bull market may not be over, just taking a badly needed breather.

Stay disciplined. The volatility is about to get fierce.

Disclaimer: This analysis is for educational purposes based on a hypothetical scenario. It is not financial advice. Trading financial market and commodities carries a high level of risk and may not be suitable for all investors.