What Does Elliott Wave Say About Gold?

06/30/2010 12:01 am EST


Let me first start by saying I’ve been a long-term gold bull since the fall of 2001, based both on economic factors as well as Elliott Wave patterns that I think are clear on gold’s bullish rise. As we are now almost in a Fibonacci 21 months of gold rally off the October 2008 bottom, I think this pattern is getting long in the tooth.

Gold has risen from $681 at the nadir of the fall of 2008 to $1265 so far, with potential to run to about $1300-$1325 an ounce on this final leg up. It stands to reason, as with any bull market, that the bull gets tired and at some point has to hibernate. This wave pattern is clearly five waves since the October 2008 lows, and we are in the final stages of the fifth wave of this pattern, in my opinion. That means we can have a blow-off top, or we truncate here and start correcting hard.

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Bull patterns tend to peak when most are not expecting it, and I forecasted a market top in mid-January and again in mid-April this year in the S&P 500 index just prior to huge drops. These forecasts were based on sentiment and Elliott Wave patterns. I am now viewing the $681-to-$1,265 rally in gold as a five-wave bullish structure that is in the final stages of ascent. Fifth waves are notoriously difficult to predict, but taking some off the table here for intermediate traders is probably a wise decision. Correcting 38% or 50% of the $600 rally would take gold back to the $1030 to $965 area, plus or minus, and not invalidate a larger bull structure. 

By David A. Banister of ActiveTradingPartners.com

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