Gold: Elliott Wave Count Implies Downside to $1000 or Lower
My recent post on Silver, which has a different wave count but similar implications, implies further downside prior to the start of a long term rebound or bull market.
One popular view on the gold price has been that the bearish triangle which began in 2013 traced out its total 5 waves (a,b,c,d,e labeled in magenta on my chart) until July 2014 and then achieved its total downward thrust to $1138 in November. The thrust action following wave "e" (as labeled in magenta) does appear to have been a 5-wave impulse, just as would be expected of a 5th wave following a 4th (i.e. the triangle). However, based on the thrust measurement at the origin of wave "a" of that wave 4 triangle, the minimum thrust should have pulled price down to $1003 or lower. It did not even come close. By contrast, in Silver, the post-triangle thrust did nearly reach its minimum downside target.
Since the minimum post-triangle downward thrust has not been reached in Gold, I still expect it to continue until it does. This leaves me to imagine two potential paths for it to do so...
First Path: Considering that the subsequent rise from the November low to the $1305 high in January appears corrective (a zigzag pattern) rather than impulsive and did retrace most of the downward impulsive thrust from the triangle, I might view it as a wave 2, which would mean that a wave 3 is already in progress or will soon begin to take price most of the way down toward the presumed post-triangle target.
Second Path: Alternate Triangle Count: This actually seems to jibe more with other factors in the price history... The popular count of the waves of the triangle may have been premature. My alternate count is shown in yellow. Perhaps wave "e" was not completed in July 2014. Frankly speaking, "e" seemed relatively too short and didn't look like a 3-wave structure under that count. It may really have been just the midsection of wave "b". Wave "a" had been a more complex 3-wave structure, and wave "b" was also, and this count justifies the rise to $1305 as 3-waves of "c", followed by the "d" down to $1145 last month, and implies that "e" up is only now unfolding. It looks like "e" still needs to rise in one final segment, likely to the yellow triangle's upper trendline (estimating $1272). At that point, I would expect an impulse wave 5 to pull price downward by a minimum of $383.72, landing near $889.
This forecast is technically derived, without considering fundamentals. I personally am a proponent of gold and silver and don't like the idea of such a drop in value. If I venture a guess as to what could possibly explain such fallout in the value of precious metals as implied here, even as currency values decay around the world, I suppose it could happen as a result of market players liquidating their various hard assets to raise cash in the event of a deflationary crash and downturn in equities. However, I think that would be only the initial reaction, and precious metal values would strengthen thereafter as confidence in them as a store of value returned.
There are two curious facts surrounding that lower target and the price distance to arrive at it. These were not factors in my forecast but are nonetheless apparent after the fact:
#1 The target $889 also represents the .618 retracement of the rise from $252 to $1920.80
#2 The prospective wave 5 would be equal to the wave 1 (see white numeric labels of downward impulse wave) to arrive at that target from $1272
Moreover, it is interesting to note that if Gold ultimately were to go down to $889, while Silver simultaneously ended its correction around $13.70 (see relevant forecast in link below), the Gold/Silver Ratio would be close to normalized at 64.79:1, in terms of the historic average since 1991 (which is about 61:1). Presently, the ratio is at 72.58:1, showing Gold to be overvalued and Silver undervalued with respect to the other.
One popular view on the gold price has been that the bearish triangle which began in 2013 traced out its total 5 waves (a,b,c,d,e labeled in magenta on my chart) until July 2014 and then achieved its total downward thrust to $1138 in November. The thrust action following wave "e" (as labeled in magenta) does appear to have been a 5-wave impulse, just as would be expected of a 5th wave following a 4th (i.e. the triangle). However, based on the thrust measurement at the origin of wave "a" of that wave 4 triangle, the minimum thrust should have pulled price down to $1003 or lower. It did not even come close. By contrast, in Silver, the post-triangle thrust did nearly reach its minimum downside target.
Since the minimum post-triangle downward thrust has not been reached in Gold, I still expect it to continue until it does. This leaves me to imagine two potential paths for it to do so...
First Path: Considering that the subsequent rise from the November low to the $1305 high in January appears corrective (a zigzag pattern) rather than impulsive and did retrace most of the downward impulsive thrust from the triangle, I might view it as a wave 2, which would mean that a wave 3 is already in progress or will soon begin to take price most of the way down toward the presumed post-triangle target.
Second Path: Alternate Triangle Count: This actually seems to jibe more with other factors in the price history... The popular count of the waves of the triangle may have been premature. My alternate count is shown in yellow. Perhaps wave "e" was not completed in July 2014. Frankly speaking, "e" seemed relatively too short and didn't look like a 3-wave structure under that count. It may really have been just the midsection of wave "b". Wave "a" had been a more complex 3-wave structure, and wave "b" was also, and this count justifies the rise to $1305 as 3-waves of "c", followed by the "d" down to $1145 last month, and implies that "e" up is only now unfolding. It looks like "e" still needs to rise in one final segment, likely to the yellow triangle's upper trendline (estimating $1272). At that point, I would expect an impulse wave 5 to pull price downward by a minimum of $383.72, landing near $889.
This forecast is technically derived, without considering fundamentals. I personally am a proponent of gold and silver and don't like the idea of such a drop in value. If I venture a guess as to what could possibly explain such fallout in the value of precious metals as implied here, even as currency values decay around the world, I suppose it could happen as a result of market players liquidating their various hard assets to raise cash in the event of a deflationary crash and downturn in equities. However, I think that would be only the initial reaction, and precious metal values would strengthen thereafter as confidence in them as a store of value returned.
There are two curious facts surrounding that lower target and the price distance to arrive at it. These were not factors in my forecast but are nonetheless apparent after the fact:
#1 The target $889 also represents the .618 retracement of the rise from $252 to $1920.80
#2 The prospective wave 5 would be equal to the wave 1 (see white numeric labels of downward impulse wave) to arrive at that target from $1272
Moreover, it is interesting to note that if Gold ultimately were to go down to $889, while Silver simultaneously ended its correction around $13.70 (see relevant forecast in link below), the Gold/Silver Ratio would be close to normalized at 64.79:1, in terms of the historic average since 1991 (which is about 61:1). Presently, the ratio is at 72.58:1, showing Gold to be overvalued and Silver undervalued with respect to the other.
