Wave Counts on Gold Show Bullish Opportunity

07/13/2010 12:01 am EST


Gold is real and will be the anchor of the next monetary system. This is quite certain because the current fiat system has been compromised by the current, ongoing economic crisis. It is quite possible that the yellow metal will be only one part of a basket of real things, for this purpose, but the idea will be the same.

I know that this statement will sound really strange for some, but look at the euro with its structural problems, and at the US dollar with its debt background. The problem is that traders—and even investors—cannot act on this premise. The time span is too unclear to wait for this to happen, and although gold has been appreciating since 2001, it is still considered a "barbaric relic" by the economic establishment.

No matter that central banks have been buying instead of selling. No matter that the public has been hard pressed to find coins at a reasonable price for some time. The amounts invested in the metal are miniscule compared to the other asset classes. Furthermore, gold, and the precious metals in general, are considered to be very volatile, and can be daunting for the average investor who wants to make a capital gain profit from trading them.

Trading the short term can really be difficult in these assets, and only the brave at heart should try to do it. This article is to point to an opportunity for the long term only. I think that there is a good chance for a substantive correction in gold that could be a great buying opportunity.

Why? Let's look at the weekly gold chart:

Click to Enlarge

  • Gold has been supported by the same trend line from the beginning of 2009 (magenta ellipses)
  • Since 710, and until the latest peak of 1265, it moved in what seems to be a five-wave move up (blue numbers)
  • Wave five has also a five-sub-wave structure that points to some type of ending
  • The trend line that supported these five sub-waves (of wave five blue) has been violated lately
  • The RSI and STOC momentum indicators are returning from overbought territory

What will be a must to consider the coming correction as started:

  • If gold should move under the great supportive trend line (seating now near 1080)
  • If you see a new trend down (lower high and lower lows) developing

A 50% correction will bring the metal near the $1000 area, and this could be a great place to search for a renewed uptrend. This will be the mentioned buying opportunity.

I would not recommend the short side because of one important factor: Uncertainty about the health of the global monetary system. An unexpected crash in the US dollar would cause great damage to such short positions. 

By Moshe Shalom of Green Wave Capital

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