Part III: Long-term Fractal GOLD

I have decided to re-introduce the fractal work in segments. We will start with an overview of what a "fractal" is (which you might like to skip), then move on to the long-term chart of $Gold. Link to Part I and to Part II, below……….

To my simple mind, a fractal is something that looks a lot like something else. For instance two brothers might look a lot alike. If they do, there is a reason they look a lot alike. They share many of the same genetic traits passed on to them by their parents. Thus, we not only have fractals, but we have a cause or reason for the development of fractals. We also might find different levels of "fractal degree", or how much two things look alike. Thus, if two brothers are identical twins, they might look more alike since they share more genetic traits than two brothers of different ages. So, we might find fractal relationships between two different humans, plants, or in the price patterns of two different charts if they share a causal relationship.

Separately, we might find fractal sequences in the same object, plant, or chart. A Rosary might have the same sequence of beads in different areas along the string, or a chart might show different areas where price has moved in very similar patterns. When viewing similar areas in the same chart we might find causative reasons why price has moved in a similar way. Reasons for similar price movement in a chart might include a similar economic environment, a similar support and resistance structure on a chart, or a similar psychology of the market participants in two different time-frames. Likewise, we might consider the concept of "fractal degree", or how similar two fractals in the same chart might be compared to other fractals that we might find. In fact, if the causative agents that create the fractal sequences in a chart are similar enough, we might end up with two fractals that are about as equal as identical twins.

In a chart, if the similar causative agents are similar enough over a long enough period of time, we might find "a fractal in a fractal." An example might be found in the basic structure of the Elliot Wave. In fact, the whole concept of the Elliot Wave theory is that investor psychology develops in patterns that repeat. Thus, the Elliot Wave Theory was developed based on repeating fractal sequences caused by investor psychology in response to the collective personal emotions of fear and greed as a Bull or Bear market plays out. Elliot described his basic Wave Theory as constructed of a basic 5 wave structure where there are three impulsive waves, moving in the same direction as the major trend; with the three impulsive waves separated by two "corrective waves", moving opposite to the major trend. (I apologize for that last sentence.) Thus, the 5 wave Elliot movement in a Bull Market would be constructed of one impulsive wave up, then a corrective wave down, then another impulsive wave up, then a second corrective wave down, followed by a final impulsive wave up. Thus, we would find the 5 wave sequence in a Bull Market as seen, below.

Yet, Elliot also suggested that we would find a similar five wave sequence inside each of the three impulsive waves as shown in the picture, below, "a fractal in a fractal."

Thus, the basic Elliot Wave Theory is based on a fractal sequence created by the collective reaction of investors to their emotions of fear and greed. Since it is likely that the fundamental environment stays fairly constant as the whole Elliot Wave fractal sequence develops in a Bull Market chart, we might also expect the appearance of the first impulsive wave in the sequence to have a similar appearance to the larger first impulsive wave, and so on- 1st waves have similar characteristics as other first waves, etc. In fact, Elliot and his followers have defined a myriad of rules to govern such waves, but we will ignore them for our fractal discussion.

While the 3 impulsive moves have fairly strict rules on how they should develop, the 2 corrective moves tend to vary greatly. This is significant to us because it suggests that the impulsive moves are generated by "purer waves of emotion" in the direction of the major trend, but the corrective wave emotions are more random in nature, witness their more variable structure. Corrective waves can be subdivided into 3 waves, 5 waves, or more waves; and they can take the form of a zig-zag or of several different types of triangles. Corrective waves can take different amounts of time to develop according to the Elliot Wave experts. None of this concerns our discussion of fractals, except that we might expect more variance to our fractal expectations during corrections.

The Elliot Wave design might be considered as a psychological "cycle" phenomenon. In fact, the EW is a series of psychological cycles inside of psychological cycles. Like fear and greed, there are times when one might be more scared, or one might be more wanton. Thus, we might expect to find some relationship between fractal work and cycle work.

To summarize fractals in terms of market price movements, we might expect certain price movements to be similar to other price movements when certain underlying market fundamentals remain the same; and especially in the same chart. We also might expect similar waves like all 5th waves that share a similar psychology to look more alike. These 5th waves might look even more alike if the underlying market factors remain very similar over an extended period of time. Since it is the underlying fundamentals of a market as perceived by man that drives price, then the driving force of market movement is in essence man's perception of the fundamentals. Finally, though Elliot Wave considers psychological cycles that are best viewed in retrospect that does not deter the promise of our use of fractals in forward-looking work especially with impulsive moves.

In Part I of this editorial series I provided my view of the investing climate, today. It seems like the Federal Reserve and Friends are giving a helping hand to market movements in the face of the massive deflationary backdrop that faces us. In such a dangerous time in economic history, I think that a readers would welcome that helping hand if it meant the difference between his family just getting by, versus a soup kitchen lifestyle of the 1929 variety. Yet, some see that helping hand as crossing an invisible line that should never be crossed. Thus, we read a lot about "market manipulation." It seems to me that most complaints about market manipulation seem to involve the paper markets, especially paper gold, where the Fed and Friends enjoy a wide range of latitude by law. Yet, I never like to see natural markets disrupted by unnatural forces. So, as investors how do we deal with all of this? Personally, I think it is best to watch what the "helping hand" is doing in terms of how it might affect my investments since it will often lead to the main driving force behind the markets. I try to keep in mind that today's markets are heavily managed in terms of what the Fed is trying to accomplish. After all, the markets have probably been managed in many ways for a longtime. That seems consistent with the adage, "Don't fight the Fed."

Yet, I find it more interesting to consider whether the management of markets might be taken advantage by an investor. Since management of the markets by the Fed and Friends during this current time period would require a pretty consistent long-term program to fight off massive deflation, it seems logical that the set of factors that drive market prices in response to the Fed's actions will provide a consistent direction over a long period of time. Such an environment might be fertile ground for the fractal analysis we developed, above. In a managed market, in addition to the advantage of knowing the expected psychological cycles as described in Elliot Wave, we could also expect to enjoy a fairly consistent fundamental environment as well. An example of this might be the Fed continuing the printing of US Dollars at an ever-expanding rate over a long period of time. Thus, we might find fractal patterns in this "managed" environment to be more alike, or of a higher "fractal degree"- more like identical twins than like two brothers of different ages.

Let's add in some general comments about the work I called "The HUI Fractal." The HUI work was not the first fractal work that I became interested in. My first fractal work involved the chart of LT Gold. I became interested in the fractal considerations of the long-term chart of Gold back in 2002, and first posted about it on the Gold-Eagle Forum in early 2003. I did not get interested in the "HUI Fractal" until late 2004. Most of the work on the HUI Fractal was developed in late 2004 and in early 2005. In reality, what I called the "HUI Fractal work" was really an intermediate-term, forward-looking trading model that had an earlier fractal cycle in the HUI chart as its basis; but was backed up by several different disciplines of technical analysis. It was a virgin attempt by me to try using many different aspects of technical analysis simultaneously in an attempt to create a futuristic trading model that might play out. Fortunately, or maybe unfortunately, that intermediate-term trading model played out too well in real time. Also unfortunately, my work on that trading model hit a rather stubborn obstacle when we had a major office fire in late 2005. Though I had sufficient time for a few months after the fire to continue to consider the HUI work in depth, I soon lost out to personal responsibilities. We will be returning to the HUI fractal work sometime over the next couple of weeks. For anybody interested in looking at the fractal work as it was presented at the time, you can click on the link, below, to my early editorials.

Let's take a quick look at the current Gold chart since I think we are at an interesting juncture for PM investors. Though I noted the potential for a short-term decline over the next 1 to 2 weeks in Part II on Silver, irregardless I suspect that Gold is ready to launch vertically into the May time-frame, much like we have seen in the Platinum chart. This coming Gold move should match the fractal view of Silver I have shown in Part II. If Gold and Silver are going to run hard to the upside in this coming time period, I think many potential PM stock investors are about ready to have a religious investing experience as they get caught with their pants, down. There are times in investing when the sentiment of investors gets totally out of whack with the fundamentals of the markets, and I believe that time is now in the PM stock sector. I believe the psychology of the PM stock sector is about to dramatically change to the positive as investors realize just how positive the fundamentals are in terms of the current inflationary environment in relation to the relatively low rates.

I have not had the time to develop many of the charts that I usually depend on, but let's take a look at a couple of charts that I just threw, together. The first chart is a chart of Platinum showing the dramatic rise underway. A quick annotation of the chart suggests that $Platinum will likely see 2575, at least. If we look at the smaller charts at the bottom, we see that the chart of Gold exhibits some of the exact same characteristics as the $Plat chart did, just before $Plat went vertical. That suggests that the psychology of the Gold investors is in a similar mode to that of the $Plat investors, just before $Plat went vertical. The technicals support the same idea with the MACD rising in the $Plat chart, supported by the rising ADX line which confirms a "Momentum Move". That same TA relationship is also seen in the $Gold chart (also below). Lastly, notice the very bullish moving average relationship rising in the $Plat Chart that can also be seen in the chart of Gold. My "old" target for Gold into this May 08 time-frame developed back in 05/ 06, and was for Gold to run to about $1,237. In a momentum move the price can easily spike higher. There are Gann numbers in the $1,150 area and up in the $1,437 area. We will have to watch to see how it plays out. Regardless, I think the HUI will surprise many investors in how aggressively it rises in the coming time period as I expect the worst case to be up to around 735 to 780. If this coming 5th wave extends, then we would be back to our old HUI target of 1250ish at the top of the channel, but it would take an extension in time. We'll talk more about that when we review the HUI fractal work over the coming days and weeks.

Let's try to tie together what we see in the LT Gold fractal chart with some of the thoughts we outlined in Part I and with some of the ideas we developed, above. To speed things up a bit, I will use a chart I annotated in the late September 07 time period since I do not have a current one, and knowing that Gold has only moved a more vertically, since.

In 2002/ 2003 on the Forum, some posters suggested the current run in Gold would be similar to the 70's period where Gold made a "two step move." From 1970 to late 1974 Gold moved higher, then Gold suffered a pretty steep and long two year correction down into late 1976, before Gold moved into the real parabolic move up into the 1980 top. Thus, we saw Gold rise for about 4 years, then drop about 50% over 2 years, then rise in a parabola to the 1980 top. Some investors still expect to see that "two step move" in this current time-frame.

Well, I disagreed with them, then, and I disagree with them, now. In my opinion we are in the middle of what will eventually be seen as ONE GIANT SWEEPING PARABOLIC VTH WAVE MOVE IN GOLD that will take us up to above $3,000 (maybe well-above $5,000) into 2012. That is an "Ogspvwmig" for short.

That thought is based on the simple basics of Elliot Wave symmetry in conjunction with the main driving force of massive USD inflation that the Fed is using to battle deflation. From a common sense standpoint, if the "Texas Two-step" is correct, then we would need to suffer an approximate 4 year long correction that would retrace about 50% of the current run in Gold to equate to the 70's. I would suggest, "That cannot happen with the Fed's need to constantly accelerate US Dollar printing, or allow deflation take us to soup kitchen 1929." In terms of the Elliot Wave argument against the Texas Two-step, the move up into 1974 is clearly characteristic of a 3rd wave (confirmed on longer charts), and the drop into 1976 appears to be characteristic of a large 4th wave- specifically a falling wedge of sorts- and 4th waves usually play out as triangles. The extended wave up into 1980 is clearly a 5th wave top.

Opposed to the 70's "Two-step" we currently appear to be in the middle of a developing Vth Wave parabolic drive in Gold, going higher as seen by the move directly from the 2000 low right up to new historic highs. The final argument against the Two-step is that the 5th wave of III seen from the wave 4 of III low, up to the 1980 high (on the left of the chart), appears fractally like an almost exact "identical twin" in both price movement and time (to today) that suggests a current expected 2011/ 2012 top- and we have correction points in each cycle that appear on the chart as "fractal identical twins" for reference points. This argument "against" is about as three-dimensional as it gets, IMO.

[So, let me suggest what the Texas Two-steppers will eventually respond with. The fractal 5 of III move in the late 1970s suggests that at the end of the current intermediate-term move higher in Gold, we will see a sharp correction to re-test the old historic highs- one last time. Looking at the Gold chart in real-time that correction will look faintly like the start of the Two-step, BUT the correction will be much, much shorter in relative terms so it is important for us to anticipate that potential as some PM investors crawl off the PM train at the exact bottom. As/ if the correction plays out like the wave 4 of III bottom, it will eventually be apparent that the sweeping parabolic Wave V is correct.]

Another thing that I have found interesting for yeas is that the large triangular correction from 1980 to the 2000 area looks like a large modified falling wedge that is most likely a "3 fan-line formation." What is special about a break-out of a "3 fan-line formation" is that once price breaks the top of the 3rd line of the fan, in this case the top of the triangle, there is relatively little horizontal resistance above on the chart. This formation is consistent with a 4th wave correction that will yield to a momentum run on the upside with relatively shorter and shallower corrections- and that is what we are seeing play out. Below, I will post a chart of the "3 fan-line correction" as seen in the earlier BGO chart.

In review, in the LT chart of Gold I expect us to see a pure parabolic Vth Wave rise to continue to develop that will increasingly accelerate to the upside into 2011/ 2012, not a 2-part run with a longer correction in the middle like the 70's Gold Bull. If so, then the Vth Wave in LT Gold that we are currently in is very similar to the 5th wave of Wave III seen on the left of the chart from the "wave 4 of III low", up to the 1980 top, marked wave 5 of III. This is significant for timing purposes in many ways, not the least of which is in terms of how long it will take us to enter the most parabolic rise.

I have marked the assumed similar points in the 5th wave of III on the left to the Vth Wave we are currently in with the letters "a" and "b." These alphabet landmarks are easy to see since they come at resistance points along the way in the chart, with "b" being "old high resistance." In my opinion, we are currently in the equivalent to the rise in the 70's to new highs toward the top of the 3rd wave of III, probably with a current vth wave of 3 of V (in the current run) left to go. If so, then we will be seeing a higher Gold price probably into May, before we see a fairly sharp correction into the end of the year or into early 2009 if there is an extension. Thus, there is the possibility that we will see an extension to wave 3 that would prolong this current up-move in time and in price. For the time being I will be looking for this current intermediate-term move to end around $1,250, knowing that there are Gann numbers at $1,150 and up around $1,437. (I will be using the intermediate Silver Momentum Chart shown in Part II of the editorial series as a reference point for "time." (In investing, we want all of the reference points we can muster.) If we do get that rise and resultant sharp correction, afterward, we would then expect to be moving into the most vertical part of the parabolic move- a wave 5 of V that would probably terminate in 2011 or 2012. I have not yet used "regular TA" to try to define what price the parabolic top for Gold into 2012 might be, but my gut has always suggested around $3,000. Hopefully, I'll have time to try to find a way to estimate such a top, but at this time I would not be surprised to see that parabolic top come in closer to $5,000, or even much higher.

[At this time I have just zapped (removed) 2 or 3 pages of opinion on how and why the price of Gold "might be/ might have been" managed in terms of the LT chart. This was just getting too long, IMO. If anyone is really interested, then contact Dr. Vronsky, and I will reorganize those thoughts into an interim editorial for him to post. If you can hang on just a tad bit longer, I have one more tiny little ittsy-bitsy issue I'd like to address as long as I have climbed up on the soap box]

Recently, Jim Sinclair's site displayed a chart by Ciga Alex showing the following chart of Homestake Mining below the chart of Gold in the 1970s. His premise seemed to be that "like this time" the Gold Stocks as portrayed by Homstake Mining did not start to rally in the 70's until Gold had pretty well hit its ultimate highs. I have nothing but ultimate respect for Jim Sinclair, but I must point out that I believe that this premise contains a "fatal assumption." It relies on the "Texas two-step" pattern of the 70's Bull as its base. Thus, my work above completely stands opposed to this premise.

In my opinion, the point where Homestake bottomed in the 70's is at the end of wave 4 of III- synonymous to the bottom of Gold at the end of Wave IV in 2000. That point is where the HUI bottomed around 35, though Homestake does appear to have even lagged that bottom on the chart. In looking at the LT chart of ASA in that time period, ASA appears to have bottomed right at the bottom of wave 4 of III in Gold, then ran in a parabola from around $12 to around $92 concurrently with Gold's parabolic rise into 1980.

We might have some lagging Gold Producers in the current environment while investors battle in their sleep over deflation versus inflation, but how many producing Gold Miners are just now reaching ultimate bottoms in price over many years?.........besides none. Now, if the premise was revised using Homestake in the 70's as a surrogate for some of the smaller Gold Explorer stocks in the current time-frame, then…… I think that the rest of the move might suggest the parabolic potential of the PM explorer stocks into 2012.

In addition, this premise, in my opinion, stands exactly opposite to Jim Sinclair's expectations of a parabolic move for Gold into 2011 due to aspects of time symmetry and chart symmetry. IMO, we are in a pure parabolic Vth Wave move in $Gold that, besides one last sharp fling of a correction, has only more accelerating verticality in its future……and ditto the Gold stocks, especially the producers.

I am in the process of moving my work to a private subscription site. Such a move should free up more of my time to delve into individual stock charts as well as discussions of different potential investment opportunities. This move should allow me to refine many of the different approaches that we have discussed in the past. Our approach will continue to concentrate on the Precious Metals Markets on an intermediate-term basis, though many charts might aid investors in other time periods. We also might extend our range out into other areas of investing in the resource sector. I have changed the contact address, below. Some readers have written requesting that we contact them when the site is ready. If you'd like, we will be sending out an e-mail notification to those who requested such when the site is ready. We certainly still plan on continuing with our public editorials into the future.

For the moment…………..Goldrunner.

Below, is the link to the Gold-Eagle Forum where many of us discuss the various topics of the Precious Metals sector………..

Again, I'd like to thank all of the posters at the Gold-Eagle Forum for their daily input. This thank you is especially extended to TQ and to Grininbarrett who have positively affected my growth over the years. I'd also like to thank Pittrader and Aholbroke for their posts at the Forum. Special thanks go to Dr. Vronsky and Westerman for creating the Gold-Eagle site and for editing my work. A very special "Congratulations" go out to Dr. Vronsky and Westerman after Gold-Eagle saw its hit counter ring up 280 million this last week.

Thanks also go out to CaptainHook and David Petch of TreasureChests since I have learned so much from them. They offer a wide diversity of fundamental and technical information and can be found athttp://treasurechestsinfo.com/Nuke/

There are many great editorials that can be found on the Gold-Eagle site at the following link. Master David Petch from TreasureChests is one contributor……. www.gold-eagle.com/research/petchndx.html

Here is the link to a site I use to research the warrants of Precious Metals stocks. I will be discussing some aspects of the leveraged use of warrants later in this editorial series. http://preciousmetalswarrants.com

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