Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Gold Heading to $2,350 Per Ounce

By

Look for a multi-week or multi-month consolidation pattern before gold moves higher.

PrintPRINT
I've recently discussed a major correction in gold, and it dropped $208 within three days of my forecast several weeks ago. Last week I wrote about further consolidation being required in what I'm seeing as an either Fourth Wave likely Triangle Pattern that will consolidate the 34-month run from $681 to $1910 into August of this year, or a three-wave ABC pattern. We are right now in some form of C Wave, it's just a matter now of confirming if we are going to get a D and E Wave to follow, or the C Wave drops lower before we bottom.

A Triangle Pattern serves to let the "economics of the security" catch up with the prior large movement upward in price. In essence, the crowd behavior pushed the price of gold a bit too high too fast, and this consolidation pattern lets the fundamentals catch up to price action. We had a parabolic move which I discussed many weeks ago, and those always end badly to the downside. The $208 drop in three days is a typical reaction to a spike run like that. At the end of the day though, I had been forecasting what I call a Wave 3 top and was looking for a multi-week or multi-month consolidation pattern before gold could move higher.

Let's examine what that triangle projection may look like. They take the form of five waves, or what we can call ABCDE in a pattern. The biggest drop is always the A Wave, and that was 1910 to 1702 in three days or less. The next biggest drop is the C Wave, and that was 1920 to 1793, noting it was a Fibonacci 61.8% drop relative to the A Wave. In other words, each successive wave down in the five-wave triangle is smaller. This is due to the sentiment finally shifting and the trading patterns moving from people chasing the hot sector or stock or metal, to the long-term investors accumulating the dips.

If we end up consolidating in a triangle, then gold should end up looking something like the below pattern I drew, with a target of $2,350 per ounce many months out:



The other pattern my firm is watching for is the ABC Correction Pattern. We had the A Wave down to 1702, which corrected 50% of the move from 1480-1910 in three days. Rarely do you get a major move down like that and not get some type of "re-test" of that low, but because the fundamentals for gold are strong and getting stronger, we are favoring the Triangle Pattern still as most likely. With that said, there is a fat and juicy "gap" sitting in the chart around 1660 on gold and dropping down there is what a lot of traders are watching. If that were to fulfill, then we will see an ABC correction ending around $1643, and then gold will begin another multi-month rally to new highs:



Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE