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Is Gold's Bull Market Over? No.

May 20, 2013

Gold’s Bull market from 1999 is not over. The decline from September 2011 is a two year correction inside a multi-decade Bull Market Rally. This corrective decline is finishing now. A huge rally leg will start at its conclusion. This article presents what the market is telling us, that Gold could reach 3,000 before the Bull Market ends. 

Above 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 big 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 shown above 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.

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. Above 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. Above we see that wave is mature, and wave up is next. We believe the consolidation over the past two years has been a wave 4pattern, which includes a descending triangle pattern. It has been forming for 20 months. Wave 2shown above was a zigzag decline. The principle of alternation suggests that the patterns for corrective waves 2 and should form different patterns. Clearly that has occurred, which legitimizes the above count, and supports the need for a coming wave within wave III.

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

Above we get a closer look of corrective waves and 4. They should be proportional in either time or price regression or both for this mapping to be correct. Wave down took about 7 months and saw Gold fall a bit over 300 points. So far, wave down has taken 20 months and take 450 points off Gold. In terms of time, since this is a 14 year Bull market from 1999, those two waves pass the proportional test, lending validity to the wave count. In terms of price decline, 300 points and 450 points are close relative to the 1600 points Gold rallied from 1999 to 2011. In percentage terms, wave took Gold down 30 percent, and so far wave 4 has taken Gold down about 24 percent. Again, close. So we conclude that all waves from 1999 to 2013 are proportional as labeled, which supports the scenario that the decline from September 2011 is a wave 4 corrective decline inside a mega-rally bull market, that by definition of an impulsive wave’s required subwaves, will be followed by a huge wave up rally.

Next, we want to study the pattern from 2011, labeled wave 4. We want to understand it, label it accurately, and project when it will end, and at what price it will end. Initially it looked as if wave 4down was simply forming a five wave descending bullish triangle. However, Friday, April 12ths’ nearly 100 point plunge broke decisively below the support shelf for such a triangle pattern, meaning something else is going on. There are a ton of overlapping waves in this pattern from September 2011, so we know it is corrective, and not the start of an impulsive Bear market in Gold. Gold has not topped, and is not in a Bear market. Let me be clear about that. What is happening is wavedecided to become more complex. Wave fours and wave b’s are notorious for acting unpredictably, having a mind of their own, and metamorphosing from one pattern to another.

However, by breaking the bottom boundary of the descending bullish triangle, a horizontal shelf that has served to stop declines several times over the past 19 months, clarity has arrived. Wave 4 has formed an a-down, b-up, c-down move, with a-down a smaller version of the descending bullish triangle, wave b-up rallied out of the triangle upon its conclusion in a three-wave {a}-up, {b}-down,{c}-up simple flat, followed by an impulsive wave c-down move which will bring about the conclusion of wave 4.

Where and when will wave c-down of bottom? One possibility is the intersection of the declining trend-channel for wave c-down we show in the previous chart with the bottom boundary of the rising trend-channel from 1999 to 2013. That projects a bottom for Gold around 1,375ish to 1,400ish, around June, 2013. The above labeling suggests waves {iii} down and {iv} up have completed, and the final wave {v} down is well underway, has a bit more downside left in it short-term, but when it finishes, Gold’s wave will have bottomed.

For Gold bugs, the good news is that once wave 4 completes, going long Gold should ride an excellent rally.

There is another reason we believe Gold is bottoming, and that is the position of the Weekly Full Stochastics, shown below. The current levels are supportive for a bottom in Gold soon, and the start of a powerful rally.

According to the above chart, Gold is about to start a strong rally. Since 2007, every time Gold’s weekly Full Stochastic fell to the 20ish level, and the Fast crossed above the Slow, Gold began a rally that lasted at least two months, some times lasting longer, and rallied at least 150 points, at least 10 percent. Gold could rise 250 points during this next rally, the first leg of a five wave rally for wave 5-up.

Coming in October 2013: Dr. McHugh’s new book, “The Coming Economic Ice Age, Five Steps to Survive and Prosper.”  

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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 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 2013, Main Line Investors, Inc. All Rights Reserved.

In 1933 President Franklin Roosevelt signed Executive Order 6102 which outlawed U.S. citizens from hoarding gold.
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