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The
recent rally in Gold took the metal from the 1620’s to roughly 1800 per
ounce before the ensuing corrective action began. Back around October 20th
we warned our readers about a likely “ wave
2” correction in Gold and we had several reasons for that warnings. One
of the biggest concerns we had was that the sentiment surveys were running
very hot at the time. The percentage of professional advisors polled that
were bullish on GOLD was 88%, with 7% neutral and only 7% bearish. Elliott
Wave Theory is the foundation of our work, though we are sure to mix in other
clues and elements to “fact check” our reads. When you see
sentiment readings that high, coupled with a $180 rally leading up to those
readings, you can begin to look for clues of a top.
The
other warning signal we noted was the MACD signal which had crossed south and
was a topping warning signal to get out of GOLD for intermediate traders. At
the time, we surmised that a “wave 2” correction in sentiment,
and therefore price was required to work off the overbought conditions. The
first level attacked the 1681 areas roughly and then a “B” wave
rally to 1751 roughly ensued. Wave 2’s are made up of a 3 wave pattern,
A down- B up- and C down to finish. It appears that GOLD is now in the final
C wave down in sentiment to complete the correction pattern.
Clues
for the “C” wave include the Goldman Sachs quasi-bearish 2013
GOLD forecast that came out today. In addition, the media attempting to
explain the drop in GOLD as being related to stronger than expected economic
indicators or fiscal cliff negotiations, neither of which make any sense at
all.
We
expect GOLD therefore to complete the C wave correction at 1631 or 1681
specifically. There are Fibonacci fractal relationships to the first leg down
(The A wave) at those levels, and they tend to repeat themselves in terms of
crowd behavior. At the 1681 level we have the C wave equal to 61.8% of the A
wave amplitude. At 1631 we have a more traditional C wave equal to the A
wave. In either event, look for a washout low in GOLD occurring at anytime near term, and for traders to start scaling in
long.
Below
is the GLD ETF chart
showing the two most likely bottoms for the precious metal, one of which
already qualifies as of today’s trading:
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David Banister
The Market Trend Forecast
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