Gold Update by Patrick McGough

Long Term:  Bull Market

The Gold Bull market started during the first quarter of 2001, and has now been in play for approximately 11 1/2 years.  Commodity cycles tend to have 13 year bull markets and 21 year bear markets.  This completes a 34 year cycle and for the moment Gold appears to be in the last 1-1 1/2 years of this cycle.  Fortunately for us traders this tends to be the most explosive part of the cycle.  In the actual economy Gold really does not serve as a commodity but as a currency.  If this were not the case why do central banks accumulate or hold gold as reserves?  The yellow metal is truly the currency of last resort.

We have been counting Gold as a large impulse, but if one looks at the 1967-1980 bull market the count was certainly corrective.  Furthermore no currency or commodity market moves with a long term impulse.  The two other major Precious metals Platinum and Silver do not have long term impulses, so with that in mind the gold count was changed to reflect a long term corrective count.  This does not change the long term targets, but only seeks to try and represent Gold’s true Elliott Wave (EW) nature.

Before moving down to the daily charts let’s take a look at two basic details in the weekly chart.  When looking at waves for EW it is critical to remember the impulse numbers (5, 9, 13, 17, 21, 25, etc).  First notice that Major a/Primary A completed with 17 waves up, and Major c/Primary A completed with 13 waves up.  It would seem that Major c/Primary A “cycled” down one wave set.  If this were to occur for Primary C we should expect 9 waves up for the final Major c. 

The second detail is just some basic Fib projections. 

Major a / Primary A (2001-2004) = 69%

Major c / Primary A (2004-2008) = 178%

Major a / Primary C (2008-2011) = 183%

Each of the major waves have approximately a 2.618 extension to the first major wave in the bull market.  This leads to a rather simple bull market top projection (69% = $2580 & 180% = $4,270).  As mentioned above these targets should be hit in the next 1 – 1 1/2 years.  After this it may not be very wise to be long gold.

Medium Term

The current uptrend began in late June and ended an ~ 8 1/2 month correction from $1923 – $1526 (21%).  From the truncated low of $1547 Gold has risen 16% to $1790.  Notice there are two resistance pivots at $1793 and $1804.  This area should prove to be an issue for Gold over the next few weeks.

Currently Gold has a significant negative divergence and looks like we could get a bearish MACD cross.  We should expect Minor 4 to correct anywhere between $35 – $65, and the uptrend should then resume.  Gold could potentially make a new high during this uptrend, but the $1800 – $1830 level should provide stiff resistance.  First target for Intermediate i = $1820 – $1830 and second target new bull market highs ($1920-$1950). 

Short Term

The shorter term charts tend to offer many more probabilities, so let’s try to view this time frame in the proper prospective.  This impulse wave can be counted in a few different ways, but we try to stick to the most obvious count.  The GLD recently ran into resistance at the March 2012 and November 2011 highs, and for the moment it appears Minor 4 started on Friday last week.  Minor 4 should find support around the $1690-$1660 level in GLD.

Alternate Count

The truncated wave in late June causes technicians a minor problem.  Was it really a truncated wave or a true uptrend?  For the moment the best answer is that we can’t be 100% sure either way.  For this reason an alternate count will be included on the GPX chart.

This count would mean Gold is most likely in Minor 1 up of a potentially extending Intermediate iii wave.  The next correction will give us some clues as to whether or not this alternate count is viable.  Enjoy the rest of this Gold bull market, since late next year will most likely end up marking the end of what has been a very nice bull run for the yellow metal.

About tony caldaro

Investor
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18 Responses to Gold Update by Patrick McGough

  1. mike7x says:

    Thanks much for the gold update Patrick. Hope to see another update once gold breaks through the $1800 – $1830 level. Great work!

  2. M1 says:

    Thank you, Patrick. Excellent work.

  3. Chris Wilson says:

    How does one affix a 34 year cycle to something that was essentially fixed for so many years prior to the gold window opening?

  4. robslob64 says:

    Tony,
    I am confused as $2580-4270 is a rather large gap for potential highs (yes, I have had the silver bug since I was a kid collecting pre-1964 coins and gold bug over the last 6-7 years) but clearly understand when to put money to work versus remove from circulation.

    That said, are those the 2 potential waves or potential alternate projected highs?

  5. CB says:

    they imposed restrictions on HFT yesterday in Germany ‘veI heard (?)- the market must be reacting to that ; )

  6. herringjd1 says:

    Spectacular. Much appreciated. Does Mr T disagree?

  7. Patrick/Tony,

    Will gold stocks (i.e. GDX) follow a similar pattern? Thanks.

    • redadair says:

      Don’t know about a similar pattern since the GDX has woefully underperformed Gold at times. My guess would be that the GDX will do well, but Gold will most likely outperform GDX on a percentage basis.

  8. cruda Lee says:

    Mucho Gracias Patrick !

  9. piazzi says:

    “If this were not the case why do central banks accumulate or hold gold as reserves?”

    🙂

    • CB says:

      thanks Patrick. Terrific work!
      “why do central banks accumulate or hold’ -they need something to maintain credibility ?- using their own currencies which they can counterfeit with no limitations would not serve that purpose too well, would it?…

      • piazzi says:

        I think it all goes to the idea of good money and bad money where bad money is sent into circulation and good money is hoarded

        Now, I am not an all-out-gold-bug, IMHO, there is a time for good money to go into hiding and a time for good money to put to work. In times of financial problems, historically, good money has gone into hoarded hiding

        That is it to me — plain and simple as far as I am concerned

      • CB says:

        def. Piazzi. Gresham – old but still good, right?
        and let’s just add political instability in S. Africa that’s starting to weigh on things…,

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