Where Is Gold Headed?

Gold finished intermediate degree wave 5-up of Primary degree wave (1) up of Cycle degree wave III-up in August 2020. Wave fives are the most dramatic waves for precious metals and Mining stocks, and this final wave 5 rally formed a Parabolic rise. The problem for gold bugs is Parabolic rallies usually do not end well. So, it is likely gold could drop 20 percent or so during corrective Primary degree wave (2) down. So far wave (2) down has been a 12 percent decline.

The next chart shows gold, as represented by the ETF GLD, finished a sideways triangle for wave B-up of Primary degree wave (2) down, which has been followed by a sharp declining wave C-down of (2) down, which if correct, has further downside coming. The alternate possibility, which is not as likely, is that wave (2) down has finished and (3) up is starting, but off to a slow start. We do not favor this scenario because the start of wave (3) up should be impulsive, which is not the case at this time.

The next chart considers the wave mapping for gold where corrective wave C-down of (2) down is not complete, and needs subwaves 3, 4 and 5 down of C-down to complete (2) down. A rise above 1,975 would eliminate this possibility.

Next, we show a possible Declining Bullish Wedge in formation for Primary degree wave (2) down. If so, gold should drop to the 1800 to 1825 area, as the final subwave E-down completes, then explode higher in Primary degree wave (3) up. The touch points are pretty good for this pattern, which lends some weight to this scenario.

This is less Bearish over the short-run than the declining trend-channel scenario we show above, which has a downside target for corrective Primary degree wave (2) down of 1700 to 1725ish.

In all scenarios, what we can be sure of is that once wave (2) down completes, a powerful wave (3) rally will follow.

At McHugh’s www.technicalindicatorindex.com we track the short-term waves that make up these larger degree trends, and chart them in our forecast newsletters, and have developed several proprietary Buy/Sell indicators that help us identify when the next significant move is starting for Gold, Silver and Mining stocks, and in which direction the move will develop. We publish these indicators in every Daily Newsletter to subscribers.

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