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There are no certainties in the investment universe. Investors are
forced to weigh up the various risks and assess the probabilities involved
before committing themselves to a course of action. Current Elliott Wave and
technical studies suggest that the probabilities now favor a strong rise in
the gold price.
It may be helpful to consider my personal assessment of the various
probabilities at different points in the recent gold market correction. On 23
August 2011 when gold pushed above $1910 my guess was that there was a 90%
probability of a severe correction. The target for the decline, as given in
my keynote speech at the Sydney Gold Symposium in November, was circa $1480,
the point at which the explosive extension in the gold price had started.
Extensions have a good record of retracing to the approximate point
from which the extension began, in this case $1480. Market action during the
decline is used to fine tune a more accurate end of the correction. Gold
never got down to target of $1480, stopping not very far away at $1523 in
late December 2011. At $1523 all the minor subdivisions suggested that there
was a 75% probability that this was the
low and that the market would move into a strong upward move, probably the
most vigorous of the bull market. A lesser alternative considered was that
$1523 might only be the A wave of a larger A-B-C correction.
 
Subsequent events proved that the lesser alternative - that $1523 was
only the low point of the A wave - proved to be the correct diagnosis. The
A-B-C correction is shown in the above chart.
The upward move from $1523 through January and February 2012 to $1792,
a gain of $270 in just 2 months, looked exactly like the vigorous upward move
that had been anticipated. From $1792 a correction in the 6%-8% range was
expected. That meant a maximum retracement to $1650 could be tolerated. A
decline below $1650 would indicate that something was wrong with the analysis
and would necessitate examining alternative possibilities.
Gold did drop below $1650, throwing a spanner in the works of the
expectation that the market was in the early stages of the massive third of a
third wave with a target of $4500. Once the 61.8% retracement level at $1626
was also broken, the strongest probability was that the rise to $1792 was the
B wave and that the market was declining in the C wave. At this stage it
began to look as if gold might still achieve the original downside objective
of $1480.
The decline halted at $1528 and then started rising in a desultory
fashion. The above chart was produced at that time showing that the A wave
decline had lasted 88 trading days while the C wave decline had lasted 55
days. In addition the C wave decline of $264 was 66.5% of the A wave decline
of $397, as depicted on the chart. The 2/3 relationship between the A and C
wave declines plus the ratio of 88 days to 55 days absorbed by the respective
waves, a neat 8:5 Fibonacci ratio, improved the odds that $1528 was the end
of wave C. It would thus also mark the final end of the correction that had
lasted since late August 2011.
The above positive assessment was not published at the time.
Additional confirmation from further market action was required to be sure of
the call. The required evidence of a rapid and large upward surge in the gold
price plus the break of the prominent downtrend did not emerge. Gold simply
churned within a relatively narrow range below the declining trend line.
A number of readers have urged me to pay more attention to time. In
the past I had found that the magnitude of the waves was a much more
important factor than the time involved. I had never been able to make an
accurate call using only time elements and cycles. Every time I made a
forecast based on time, I got it wrong. Nevertheless, I resolved to examine
the time elapsed by the different moves more closely.
That gave rise to recognizing that the 88 and 55 days absorbed by the
A and C wave declines respectively was the interesting Fibonacci ratio of
8:5. With the gold market churning and going nowhere, I developed an
alternative theory that $1528 was not the final low point of wave C but only
the low point of wave a of an a-b-c move making up the C wave.
That would explain the desultory sideways trading in the gold price
and implied that the final low was still somewhere in the future. An
extension of this theory was that the decline in the smaller and final wave c
to the low would last 33 trading days. This would extend the previous 88:55
ratio to 88:55:33, and would mean that the time absorbed by the two small c
wave declines would total 88 days (55 +33), identical to the 88 days absorbed
by the wave A decline.
This was pure hypothesis. There was no real basis for this theory, but
it seemed worth testing it. If it was possible to predict the day of the
final low ahead of time, that would be a significant achievement. Gold had
rallied to $1640 on 6 June 2012 and then started churning sideways with a
downward trend.
Projecting ahead 33 trading days from 6 June 2012 produced a date for
the forthcoming low of 23 July 2012. I didn’t have any idea of what the
low price would be. The chart below depicts what happened on 23 July
2012.
The low gold price on 23 July 2012 was $1564, certainly not a new low.
Yet the gold price started rising almost immediately. Within a couple of days
the gold price had broken upwards through the downtrend line that had been in
place since the end of February 2012. This is a very positive development
which will be greatly enhanced if the gold price continues to move strongly
upwards over the coming days and weeks.
The bottom line is that we now have a really strong probability that
the correction which started at $1913 on 23 August 2011 has been completed
both in terms of Elliott waves and also in terms of time elapsed. If this is
correct, the gold price should soon be expressing itself in violent upside
action as it moves into the third of third wave which is still targeted to
reach $4500.
Alf Field
Comment to: alffield7@gmail.com
Disclosure and Disclaimer Statement: The author has personal
investments in gold and silver bullion, as well as in gold, silver, uranium
and other mining shares. The author’s objective in writing this article
is to interest potential investors in this subject to the point where they
are encouraged to conduct their own further diligent research. Neither the
information nor the opinions expressed should be construed as a solicitation
to buy or sell any stock, currency or commodity. Investors are recommended to
obtain the advice of a qualified investment advisor before entering into any
transactions. The author has neither been paid nor received any other
inducement to write this article.
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