Gold has continued to uptrend for a record breaking eight months. From a downtrend low of $641 in June 2007, it just this week hit another all time high at $958. Nearly a 50% gain, during this period of the seven year bull market. This bull market is likely to continue into at least 2009. As there are several more waves to unfold, even in the least bullish scenario. For now, however, after a close examination of this uptrend, it appears to be reaching its peak. When reviewing the uptrend from the $641 low, we see five distinct waves as labeled in the chart below. The first four of these waves completed at the November low of $773. Since that low, the fifth wave in Gold has completed four smaller waves, and is now in the fifth of the fifth wave.
In an attempt to identify the top of this uptrend there are several fibonacci relationships worth noting. First we examine the waves that have completed. Wave i gained $47 ($641-$688), wave iii gained $196 ($652-$848), and the combination of waves i thru iii gained $207 ($641-$848). Then taking the low of wave iv at $773 we can now project a potential wave v top based upon fibonacci relationships.
If wave v = waves i thru iii, then $980 ($773+$207)
If wave v = wave iii, then $969 ($773+196)
If wave v = 4.236 times wave i, then $972 ($773+$199)
Therefore the fibonacci wave v topping range based upon the activity of the first four waves provides: $969-$980. These levels are not very far from the $958 print high posted this past thursday. This suggests that Gold is nearing a medium term top, and caution is advised. Additional technical evidence can be observed is the ongoing negative RSI divergence on the weekly chart, and the extremely overbought MACD. The reason for this update is that during this uptrend Gold has gained $317. When this uptrend concludes the most likely support level is the previous fourth wave, or wave iv. Wave iv is $185 below that recent high at $773 as noted above. A downtrend that steep would naturally wipe out much of the recent gains. This has occurred before in this bull market. The very strong uptrend from late 2005 to the spring of 2006 was also heavily corrected, as you can observe on the weekly chart. In summary, it’s time to get cautious on the Gold bull market.