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Gold Continues to Correct in a Fourth Wave Pattern

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Beware of shorting or going long gold until the fourth wave pattern is confirmed as upside will be difficult to obtain and downside risks are high.

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I got a bit of hate e-mail over the last few weeks from the gold bugs who thought I didn't know what I was talking about when I forecasted that a multi-month consolidation and correction in gold was imminent. I've written ad nauseam about crowd behavioral patterns as they related to both stock markets and precious metals. It should not come as a surprise that gold is continuing to drop after a 34 Fibonacci month rally from $681 to $1910 per ounce. That rally came in five clear Elliott Waves and ended with a parabolic race to the top. I consistently warned readers about not being caught holding the bag, and to take defensive measures.

My most recent update was to simply try to figure out whether the continuing correction in gold would take the form of an ABC pattern or an ABCDE Triangle Pattern. It is becoming clearer that the official pattern is ABC. In English it means that the first leg down from 1910 to 1702 was the "A" Wave, the rally back up to 1920 was the "B" wave. The C wave is continuing underway and one of my longstanding targets is $1643, which is a Fibonacci fractal relationship to the prior lows and highs, and also conveniently fills in a "Gap" in the gold chart in the 1650s.

During these fourth-wave consolidation periods, it reduces sentiment back down to normal levels and lets the economics of the move in gold catch up with the price action that was extended. The first area to watch is the re-test of $1702 spot pricing for a C wave low, but the evidence is for a further drop to $1643 before I would get too interested in trying to game gold to the upside.

Here is the chart I sent out nine days ago with gold at $1837 forecasting a possible C wave continuing lower



I've stayed away from either shorting gold or going long gold while I watch and confirm the fourth wave pattern. It's simply the smart way to go knowing that upside will be difficult to obtain and downside risks are high. It does now appear that I am eliminating the Triangle pattern and sticking with the ABC Correction with the C wave still working its way lower. If $1702 breaks, then you should expect to see 1620-1643 as next pivot low ranges.



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

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