Gold has been in a sideways pattern since its mid-2013 low. First, let’s cover the near term action on the daily chart (below). A secondary bottom formed in late December 2013, from which a rally ensued and topped in late March 2014 in C or 1. From there, we see a corrective decline with a [b] wave triangle complete, or nearly so. It’s this triangle [b] wave that makes an upcoming buy so compelling. Notice that the (b) wave, of [b], is a clear three wave move, as is wave (c) of [b]; both of these waves give us a high degree of confidence in our count. A final plunge below 1,260 most likely to 1,235 will complete wave D or 2. If it’s the latter, get ready for a blast off to the upside in wave 3, which virtually no one expects (recent sentiment is overwhelmingly bearish, which is contrarian bullish). Into the forecast wave lower, traders will likely be calling for $1,050 – $1,000 gold.
However, even under the scenario that gold will trade lower, that won’t happen until after a bounce back towards $1,350. And, as we’ll show in a later post, it’s possible that the lows are in for gold, and that it’s now headed to test the previous top at $1,900+. That’s our alternate scenario, until we see gold above $1,400 to rule out another leg lower in the big picture. Our top scenario is to look for a bounce in wave E, after D is complete, hence “Gold Weakness Should be Bought.” After the bounce in E, we’ll look for a bearish reversal back down, as long as we’re below $1,400, but be careful here, as the alternate runs counter to that.
This long term gold chart is for a bigger picture context. We believe that the five wave rally up from the 1999 low is complete. Wave [A] of II is either complete, or nearly so. Even if we assume another year or two of sideways to down action, we can assume that the low in the previous fourth wave, near $700, will hold. When gold indeed bottoms near here, we can raise our minimum price target from $3,400 to just under $4,000.
The action needed to confirm the alternate count is a push above the high at $1,400, which would also break the down trendline off of the high. Substantial resistance is in the $1575 range, so waiting for confirmation of our bigger picture count is quite reasonable, because gold will likely need some time to fight through this overhead resistance.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.