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December 24, 2005

Gold Update 3
by Roland Watson

Going on from our last Elliott Wave and Fibonacci analysis of the current gold correction, we stated that gold had finished its first initial down move but awaited an end to the ABC corrective pattern we believed was in action.

Reproducing the chart from our last article, we saw how gold had rallied into this correction pattern and we were looking for the completion of the "B" wave before commencing the next drop in the "C" wave. We still annotate the possibility of this being the end of a wave 1 for now but stick to this being an ABC pattern beginning the 12^th December.

As it stood back then, the minor "abc" move from the 16^th to the 20^th was enough in theory to complete the large "B" wave. However, as seasoned ellioticians will know, corrective patterns can consist of corrective patterns themselves in a sometimes complex manner. In that light, we show the most recent chart:

There are two things we have to say about this chart. Firstly, you will note the "b" wave between the 21^st and 22^nd finishes below the "5" wave of the 16^th. Initially we thought this may have signified the end of the correction, but waiting for a day or two proved otherwise. The price action now suggests a pattern called an "irregular flat" where the "b" and "c" waves overshoot the initial "a" wave rather than all being of roughly equal length in a normal flat correction.

Looking at the numbers, wave "a" moved about $16 and "b" moved about $20 and so far our suggested "c" wave has covered about $16. If this was an irregular correction in operation, wave "c" should overshoot the wave "a" top of $509 to complete the overall correction.

Secondly, since we always like to have an alternate count, it could be that move down to $489 on the 21^st was a complete correction itself. However, this requires the final "C" wave to be only 42% of the "A" wave from the 12^th December top. That would be moves of $47 and $20 respectively. This is theoretically possible, but not a leading contender at this point unless gold breaks back up to the $520 range. Elliott rules expect wave C to be at least 61.8% of the length of wave A and normally the same length ($47).

Going back to our irregular flat, one source I read (see link) suggested these Fibonacci ratios for such a pattern:

As we said, the "a" wave was $16 and the "b" wave was $20, which gives a ratio of 1.25, so we are right on target again with the Fibonacci ratios. The c/a ratio of 1.62 or 2.62 suggests a final "c" top of $516 or $532. Here is the 30-minute zoom in of that multi-day correction pattern with annotations.

The (C) impulse wave appears to be coming to an end unless it becomes what is known as an extended 5^th wave where it stretches out that little bit further. If the price drops much below $500 then we would consider the whole correction beginning 16^th December to be over, but we continue to watch for further clues.

Admittedly, the Fibonacci targets of $516 and $532 both sound a bit high to us at a current price of $506 this Friday, so do we trust our gut feelings or what the numbers are saying? Well, as you may know, Gold can be quite an emotional market for some, so for now we just sit back and see what happens during and after the Christmas period.

Until then we wish our readers a happy festive period!

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99. To view a sample copy of the New Era Investor newsletter, please go to www.newerainvestor.com and click on the "View Sample Issue Here" link to the right.

Comments are invited by emailing the author at newerainvestor@yahoo.co.uk.

Roland Watson
http://silveranalyst.blogspot.com

Copyright © 2005-2008 The Silver Analyst

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