TWO MONTH'S AGO:
Data updated to 9 July 2007.
MARKET ACTION SINCE THEN:
Data updated to 28 September 2007.
The past three Gold Update newsletters highlighted the following bullish technical factors that evolved in the gold bullion market:
These factors gave rise to the forecast of an "upside catapult of at least $100 without a significant correction", which expectation has now been achieved. The starting point of wave 3 was a PM fixing of $642.1 on 27 June 2007. Last Friday, 28 September 2007, the PM fixing was $743.0, a gain, thus far, of $100.90. The only correction since wave 3 commenced was the 3.9% decline depicted in the above chart as wave ii, finishing at $657.5.
This sharp "catapult" type rise confirms the previous analysis of the very unusual, irregular, upwardly skewed corrections. It was the only pattern that fitted with the 7%-8% magnitude of the corrective waves in wave 2. The rhythm of the corrective patterns has been 4%, 8% and 16% at increasing orders of magnitude, and 8% was what was expected for wave 2.
Perhaps it will help to understand this if we re-visit the "Template" or guide lines suggested in Update XI for the breakdown of the smaller waves within major wave THREE. These forecasts have been slightly edited to take account of recent events:
The following is the forecast template for the entire extent of Major Wave THREE as depicted and explained in Update X:
We are currently in wave I of major wave THREE. We can now insert the first two minor waves of wave I and make a guess at the remainder of wave I as follows:
There are three important points to note:
Third waves have another characteristic that is sometimes useful. They often have a mid-point gap that can be used as a measuring gap. The mid-point gap can generally be recognised by the fact that it is also a "point of recognition". That simply means that the market has come to acknowledge the new reality. In this case, the realisation that the gold market REALLY is in a bull phase. There have been several gaps in the current wave 3, but so far none has been accompanied by an adequate degree of "recognition". Thus the mid-point measuring gap of wave 3 possibly lies somewhere in the future.
If the mid-point gap occurred this week, for example, at say $750 and we use the beginning of wave 3 at $642.1 as the starting point, the gain to the mid-point would be $107.9. ($750-$642.1). The target for the peak of wave 3 would then be calculated by adding $107.9 to $750 = $857.9. That would place the probable peak of wave I of wave THREE well above the $870 target depicted in the Template above.
Another clue to the peak of wave 3 will come from the 4% correction (wave iv of wave 3) that should be expected soon. Once this has occurred, it will be possible to do a more accurate analysis of the minuette waves in wave 3 and thus estimate a target for the peak.
The gold market seems to be well set in an impulsive upward pattern that should take the gold price to new all-time highs in due course.
COT's and the Commercials.
The chart below shows the COT figures for the net positions of Commercials and Large Investors in Comex gold futures during the past 3 years. The chart shows that the Commercials have increased their net short position in gold futures to the largest level in some years. One has to go back to October 2005 to find a similarly large net short position. The other side of the trade has been taken by Large Investors and their net long position is now also at its largest, again the same as it was in October 2005.
What happened after this situation last occurred in 2005? The gold price then was $470 and it subsequently embarked on a rapid rise to $730 (a gain of 55%) in just 7 months! If the same thing happens on this occasion, a 55% gain would place the gold price at over $1,000 within 7 months - and that would be VERY bad news for the Commercials.
COMMERCIAL'S AND LARGE INVESTOR'S NET POSITIONS OVER THE PAST 3 YEARS:
1 October 2007
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Disclosure and Disclaimer Statement: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments in base metal mining shares including Zinifex and Mincor ment. The author's objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.