What is the Deal With Gold?

In the first chart below, we show the big picture for Gold. Gold bottomed July 20th, 1999, wave II’s bottom. Since then, wave III up has been one of the all-time greatest Bull Markets in Gold. The question this weekend is, is Gold’s long-term Bull market from the July 20th, 1999 low of 252.80 over? Gold remains in a well-defined rising trend-channel, and our Elliott Wave analysis says no, the Bull Market rally in Gold is not over. Wave III so far has taken Gold up 1,670 points to the September 6th, 2011 all-time high of 1,923, which was a 761 percent gain in 12 years. Since then, Gold has been correcting.

There are many reasons we do not believe Gold has topped, and believe that Gold has much higher to go. Wave threes that are not part of a triangle pattern are impulsive, meaning they move the price vertically. These impulsive wave threes (in this case wave III) are made up of five subwaves. Below we can clearly see that wave III so far has only produced four subwaves. This means there has to be a fifth wave coming, a rally leg. In stocks, typically wave threes are the most dramatic. In precious metals, typically, wave fives are the most dramatic. Below we see that wave 4 is mature, and wave 5 up is next. We believe the consolidation over the past two and a half years has been a wave 4 pattern, which includes a descending triangle pattern. It has been forming for 29 months. Wave 2 shown below was a zigzag decline. The principle of alternation suggests that the patterns for corrective waves 2 and 4 should form different patterns. Clearly that has occurred, which legitimizes the above count, and supports the need for a coming wave 5 within wave III.

If the coming wave 5 is to be the most dramatic move, then it will have to take Gold higher by more than the 750 points that wave 1 produced, and likely more than the 1,200 points wave 3 up produced. It suggests Gold should head for a price target of 2,700 to 3,000 when the coming wave 5 up finishes.

A rise above 1,500 would confirm that Gold’s next mega-bull market is underway, with an upside price target of 3,000.     

The above chart shows an interesting short-term wave mapping that looks to be occurring. The orderliness of Gold’s decline since September 2011 is fascinating. We see parallel trend-lines; we see two Descending Bearish triangles that are identical and that have upper boundaries on the same precise downward sloping upper boundary trend-line; we see a death cross on the weekly chart where the 50 week moving average has crossed below the 200 week moving average; and we see the convergence of the 50 week moving average line with the upper boundary of the second Descending triangle’s upper boundary, which is not far from where Gold’s price sits this weekend. The decline from September 2011 has so many overlapping waves and patterns that it clearly looks corrective, which is consistent with a wave 4 (wave fours are typically one of the two most complex waves, along with wave b’s), which is what we believe is occurring inside a primary rising trend-channel from the year 1999.

The above chart looks to be saying Gold could top around the convergence point of the declining 50 week moving average and the upper boundary of the second Descending triangle, around 1,345ish. From that top Gold could decline toward the 1,050 to 1,100ish area and produce wave 4’s bottom. After that, a powerful rally toward 3,000 should begin, wave 5-up.

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Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com.  The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only.  Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice.  Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision.  Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment.  Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2014, Main Line Investors, Inc. All Rights Reserved.