Ending Diagonal Sets the Stage for a Reversal Higher.

Timeframe: 4H  ·  Bias: Bullish above 3,900.

Gold has spent the last several months grinding lower in what I read as a complete Elliott Wave correction. Price has carved a full W-X-Y structure down from the 5,600 high into the 3,900 region — and the way the final leg has unfolded is what makes this setup compelling. It’s printing as an ending diagonal, one of the most reliable reversal structures in the Elliott Wave toolkit.

The bigger picture: a complete W-X-Y correction

Stepping back, the entire decline from 5,600 breaks down into three connected corrective phases:

• Wave W — the first zigzag down into the 4,099 low.
• Wave X — the corrective bounce that retraced roughly half the decline, topping near 4,897.
• Wave Y — the final decline from 4,897 into the 3,900 region, completing the pattern.

This W-X-Y (a double zigzag) is a corrective structure — and that distinction matters. If the whole move down from 5,600 is corrective rather than impulsive, the larger trend is still pointing up, and the next significant move should be a reversal higher.

The setup: an ending diagonal on the final leg

The final push into the 3,900 low is where it gets interesting. Instead of a clean, impulsive selloff, price contracted into a wedge — an ending diagonal. These form at the termination of a move, when sellers are running out of steam, and they’re known for producing sharp, fast reversals back to (or beyond) where the diagonal began. The traits I look for:

• Five legs, each subdividing into three waves (a 3-3-3-3-3 structure).
• Overlapping waves inside converging, contracting trendlines.
• Often a throw-under of the lower boundary, followed by an aggressive reclaim.

The trigger: throw-under and reclaim

That is exactly what we just saw. Price dipped below the wedge’s lower boundary — the throw-under — then reclaimed it sharply, closing the session up +1.28%. That reclaim is textbook: it signals the decline is likely complete and that momentum is beginning to flip.

The roadmap: targets and invalidation

First target: 4,350 — the origin of the diagonal. Ending diagonals typically retrace back to their starting point at minimum, and usually faster than they took to form. Key resistance: 4,897 — the prior wave X high, and the real test: a clean break above it, ideally with a clear five-wave rally, confirms the trend has turned and opens the path to new highs. Invalidation: a new low below 3,900 negates the diagonal.

Managing the risk: the alternate scenario

No count is guaranteed. The main alternative is that the drop from 5,600 is an impulsive five-wave decline rather than a correction. In that case the ending diagonal would be the final wave down, and this bounce would be a corrective rally — strong, but likely topping around the 4,897 area before rolling over to new lows. Both scenarios begin with the same sharp bounce; the behavior at 4,897 is what separates them, which is why I treat a decisive break of that level as the line between “strong bounce” and “genuine trend change.”

What I’m watching

Confirmation comes from structure: a clear five-wave advance off the 3,900 low. Five waves up tells me the character has shifted from corrective to impulsive — the signature of a new uptrend. Until then, I’m bullish but respecting 3,900 as the line in the sand.

Bottom line

Gold has completed a full W-X-Y correction, and the ending diagonal into the 3,900 low points to a reversal higher. As long as 3,900 holds, I’m looking for 4,350 first, then the decisive test at 4,897. Break that, and new highs come into play.