Elliott Wave Gold Update XIII

In Update XII, which was published 2 months ago, it was stated:

"Both gold and silver seem poised for dramatic upside price explosions if the latest Elliott Wave count set out below is correct.

This interpretation calls for an immediate strong 3rd wave upward move in both silver and gold. Under this interpretation gold should knife through the resistance in the $680-$700 area without a problem and rise to levels in excess of previous forecasts for the peak of wave 3 of $760. A target of a minimum of $800 is now possible for the peak of wave 3."

The following chart of the PM London gold fixings was presented in Update XII:

Gold did start moving up, but in a fairly gradual way. It certainly did not knife through the $680-$700 resistance area without a problem. In fact, after reaching a peak London PM fixing of $691.4 on 20 April 2007, gold turned down.

With a little more thought at the time of writing Update XII, it should have registered that the $680-$700 resistance area was an obvious place from which a minor correction could occur. The minor corrections in gold have been in the 3% to 5% range. This is the magnitude that should be anticipated as the size of the current correction in gold.

The chart below depicts the action in the PM gold fixings since the publication of Update XII. Since the peak of $691.4 on 20 April 2007, there has been a small a-wave correction (to $669.5) followed by a b-wave rally to $688.8 and the market now appears to be completing the small c-wave down to the target low point of the correction.

A 4% correction from the $691.4 peak PM gold fixing on 20 April would target a low point of $663.7. As this is written, gold is trading at $663 in the Far East cash markets on 17 May, so there is a possibility of the London Gold fixing later today being close to the target range.

If this interpretation is correct, then we have an extremely bullish outlook immediately ahead as the most powerful move, wave iii of wave 3 of wave THREE, should soon get underway. In a wave iii of 3 of THREE situation such as this, one can anticipate a sling-shot upward movement in excess of $100 per ounce for gold, without any significant corrections.

Markets spend 90% of the time making up their minds what to do - and then only 10% of the time actually doing what they have to do in terms of dramatic moves. It is now more than 12 months since the $725 wave ONE peak was reached in gold in May 2006. The gold market has spent this time coiling and twirling, building up strength and momentum for the rapid move to the upside. Gold has spent the 90% of the time building this launch pad. It seems ready for lift-off in the dramatic move occupying 10% of the time. This would be a perfect fit for a wave iii of 3 of THREE type wave, generally the strongest in any sequence.

An analogy could be that of a hammer thrower in athletics. The athlete twirls around in the launch cage, going faster and faster until maximum momentum is achieved. At that point the hammer is released and flies the maximum distance possible from the momentum that has been generated. Gold has spent a year twirling and building momentum. The time has come for the gold market to launch itself upwards to points well above the old $725 high point of a year ago.

What can go wrong with this ultra bullish interpretation?

We will soon know what is in store for gold market participants. The gold price needs to hold current levels in the region of the low $660's, give or take 1%, and then launch itself upwards in a strong impulsive move. Failure to do so will call into question this bullish analysis.

What are the less attractive alternatives? One possibility stems from the fact that wave ONE of the gold bull market occupied a period of 5 years. Wave TWO, which is the corrective wave to ONE, should occupy a period of time that bears some relationship to that taken by the upward wave ONE. Thus a 5 year upward movement is not going to be corrected by a move that lasts only 3 weeks or even 3 months. It will often require as much as a third of the time taken by the upward move.

If wave TWO is to occupy a time period of a third of the time taken by wave ONE, then wave TWO might require at least 18 months before it is complete. As the duration of the current correction is only 12 months, there could possibly be another 6 months of sideways to downwards coiling and twirling still to go in the gold market before it breaks powerfully to the upside.

Experience has caused me to place much more significance on the magnitude of the corrections and much less reliance on the time element. The 12 months of churning that has already taken place in the gold bull market should be adequate to cover the necessary time element to build a base for the next advance.

If the current minor correction exceeds the bounds of the 1% limit from the $660 level, then it will be necessary to revise the wave count. It may not necessarily be as bad as another 6 months of churning. There may be other explanations that can be explored later if necessary.

With a modicum of luck, gold participants may shortly be enjoying a very powerful $100 plus rise in a relatively short period of time.

Alf Field

Comments to: [email protected]

Disclosure and Disclaimer Statement: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments in base metal mining shares including Zinifex and Mincor ment. 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.