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April 16, 2007 Gold Boom / Dollar Bust |
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Introduction Through a briefing of price charts, we will speculate on just how far the dollar can fall, and to what heights Gold may climb. In addition, Elliott Wave Technology will share with readers precisely how we have kept our trading clientele on the right side of a rather challenging Gold market from the print high of 730.40 in May 2006, through the violent, and choppy, year-long consolidation experienced since. Gold Boom / Dollar Bust Some 15-years ago in 1992, the dollar hit it lowest levels striking prints south of 78.50. Last week, it slipped back below 82.00 breaching lows most recently recorded last year in December of 2006.
The
Dollar Index has approached and tested the 80 level five times in the past
thirty-years: 1978, 1990, 1992, 1995, and 2004. Unless the situation turns
truly horrific, the long-term dollar chart above, suggests that a tradable
bottom may be forthcoming in the not too distant future.
Since the start of the Federal Reserve System in 1913, the U.S dollar has lost more than 95% of its purchasing power. One can only conclude that the Federal Reserve System evolved not to tame inflation, but rather to control "faith" in an ever-valueless unit of exchange to which it has significant share of monopoly advantage. Faith
as such, is apparently in abundance along with its cohort liquidity. This
shall remain "standard fair" until the financial spheres' growing monopoly
on money and credit creation either implodes, or somehow spawns a formidable
alternate competitive force. Until then, the current system assures the world
of an endless supply of continually depreciating paper and debt.
At first thought, one might assume that the system keeps extending itself, making larger and larger promises, with no intention of truly making good on them. From another perspective however, there are vast numbers of individuals and corporate beneficiaries who are rather complicit in this grand illusory ponzi-like charade. Amid an unprecedented tripling of home values since 1999, "Joe-Homeowner", aka "consumer-Joe," is one such beneficiary. As long as he purchased his home prior to the price-surge post 2003, he is sitting pretty with huge unrealized profits, and has plenty of downside cushion to break-even should he need it. If the surge stops here, real estate purchases made after 2005 will no longer appreciate, and possibly depreciate considerably over time. Soon after, designs on buying real estate for investment or future wealth effects will become passé. It many aspects, it is the very demise of the reserve fiat dollar, which continues to feed bull markets of every stripe around the globe. Record
levels of debt, equities (public and private), real estate, and commodity
values, as well as never-ending wars, are all beneficiaries financed by the
slow-motion, multi-generational ongoing dollar bust.
It is with sheer disbelief, and utter amazement that the real world accepts such an empty unit of exchange to start with. To fathom a possible reason for such collective behavior, one need not go any further than studying the experiment of Pavlov and his dogs. More astonishingly, the entire world, which has been built and financed from such empty illusions of exchange, will require exponential infusions of the same, with every imaginable variant accelerator to keep faith alive, and the ponzi-scheme on sound footing. All this begs the grand philosophical question of who is fooling whom, and who really cares? The answer is quite simple. Nobody cares so long as the majority feels no pain. So long as the global system alongside the majority of its citizenry remains flush with the sensation of wealth, everything else sells itself.
Gold
has awakened from a 21-year bear market, which ended with a double bottom
in 1999 and 2001. Remarkably, amid the dollars three crashes into the 1990,
1992, and 1995 lows, Gold was miraculously subdued and eerily dormant.
Nearly two months ago, the Dow Jones Industrial average dropped just 3% from all-time historic highs, and the calls for bailouts, interest rate cuts, and rescue packages for the US real estate market rang loud and clear. The last time we checked, U.S home values have declined just modestly on balance, and nowhere near back to their 2003, or 1999 "break-even" values. In our view, this type of hair-trigger fear, and persistent pessimism, resonates due to the flawed systems necessary for sustained perpetual growth with minimal and preferably no interruptions. For the system to continue sustaining itself, debt, and money creation must continue to accelerate at ever-faster rates simply to maintain balance and neutrality. Frankly, we are quite done with attempts at making sense of this age-old madness. It is very old hat, and "is what it is." Until the paradigm shifts, we play the hand as dealt. On to the Charts... First, we'll provide a quick grand strategy overview of each of the markets, and then we will share some archived charts from Elliott Wave Technology's Near Term Outlook. Broke-Back Dollar: We
begin counting the century old dollar bear at the Super Cycle B wave
crest in 1985. In our view, the most fitting and likely "flexible" pattern
for managing the faith of a fiat currency (whose ultimate destiny is its
intrinsic value of $0.00) would be that of a massive ending diagonal. In
this case, the "ending" part of the diagonal may become a quite literal description.
The massive pattern we describe is not visible in this short 25-year span.
Instead, this chart captures the essence of Cycle Waves A and B,
terminating respectively in 1991 and 2001. The Cycle Degree Pattern is that
of a descending triangle. Since the crest in 2001, the dollar is in process
of descending toward Cycle wave C. Cycle wave A took 6-years, Cycle
wave B 10-years, and we are now into our sixth year of Cycle wave C.
There is no certainty as to when Cycle C will terminate. It can occur as
early as 2007, or it may stretch into the next decade or beyond. The larger Super-Cycle
C wave down, could also morph into five vs three waves at Cycle Degree,
adding a D and E wave to the current Cycle Dimension. Such a prolonged pattern
would likely be viewed as the most preferred, least painful, and most "flexible" manner
in which to manage the total destruction of a sovereign fiat currency. In
the best case scenario, if managed with supreme luck and total efficiency,
by the time (2325-3000AD) Super Cycle E gets around to collapsing
the currency, we could be looking at a 100,000 Dow, $8000 Gold, median home
prices of 5-million dollars, and fuel costs for personal transportation at
around 500 dollars per fueling. To get there, the dollar will have "halved" numerous
times, and likely be trading under 8.00 vs the 80.00 level. More immediately
however, the current Cycle wave down can terminate anywhere between 80.00
and 45.00
The Gold Case File: The
case for Gold begins with the print high of $875 in 1980. We are viewing
this as the crest of Wave A at Cycle Dimension. Of particular note
is an inverted synchronization of the Dollar and Gold upon their respective
Cycle Degree B wave terminals in 2001. The PRIMARY DEGREE bear market in
Gold lasted 21-years. We are now into year six of Cycle Wave C. Apart
from the natural retest of the $875 high, the current wave at Cycle dimension
can launch Gold north of $1500 before all is said and done. If aligned
with the postulated collapse of the dollar, we'd be looking at a $7000-$8000
Gold price. To get blow by blow interpretation for the dynamic evolution
of wave structures as they unfold, subscribe to Elliott Wave Technology's Near
Term Outlook.
The Gold charts that follow come from the archives of Elliott Wave Technology's Near Term Outlook. They represent a brief cross-section of our market guidance and forecasting services. No guidance, technical analysis, or forecasting method is flawless. Any inference of "perfection" at every twist and wiggle of a price series is likely not an accurate account of the real world trading experience. Elliott Wave Technology's approach to markets is a contrarian one. We provide traders with unrivaled navigational guidance as to low risk entry and exit levels for counter-trend trade set-ups. Yes, we try to catch tops and bottoms. We do it all the time. Sometimes we get lucky and grab them on the first go, but more often than not, it requires a managed campaign of multiple offensives to get the big pay-offs. This is especially true for a market like Gold, which has been in a wide consolidating trading range for nearly a year. What makes or breaks traders, is first the adoption of good strategy, followed by the prudent management of trading campaigns. It is our job to provide a sound road map from which traders can profitably navigate, manage risk, and book profits. As you follow the charts below, you will note that wave counts rarely remain fixed. Particularly in shorter periods, wave structures like markets, evolve dynamically. As the markets adjust, so does our guidance and interpretations. Comments below will be brief and highlight points associated with each of the charts from our archives. However, subscribers receive a full compliment of commentary, explanation, and guidance with each of our timely publications. From Elliott Wave technology's near
Term outlook Tuesday May 9 2006 At
this juncture, Gold had been trading near vertical for over two months. We
were near about done counting the last sub-divisions of the spike, and began
issuing our first counter trend sell probe notifications when gold moved
above the 700 level. For position traders, early accumulation is a pillar
of success. Those with shorter time horizons, are advised to take measured
bets when attempting to launch counter trend offensives. This was an "early" stab
at catching a top. Note the 628, 590, and 545 levels at the right. They are
pre-determined support targets for the imminently anticipated reversal.
From Elliott Wave technology's near
Term outlook Thursday May 11, 2006 Two
days later, Gold continued its parabolic run- tacking on another $26.00 from
our recent sell signal. The persistent spike revealed some shorter-term confirmations,
but the larger readings continued to warn of exhaustion. Note the last extended
fifth wave of our smallest and only remaining sub division. Though we held
additional targets above the 744 level, at this stage the move was getting
so insane, and impressive, it appeared as though it had done all it could
possibly do. If it moved higher any faster, it would have gone backwards!
As such, we issued a secondary sell probe against the 726 high.
From Elliott Wave technology's near
Term outlook friday may 12, 2006 Just
when we thought, we had seen a top, Gold continued to press higher by another
$3.75. This move did little to impress, and provided additional evidence
that the move had possibly exhausted. This was the third and final probe,
which caught the top in Gold at the May '06 high of 730.40
From Elliott Wave technology's near
Term outlook friday may 19, 2006 Within
a week's time from our third attempt in grabbing top, Gold showed clear signs
it was beginning to surrender. The first of four viable downside targets
had been achieved with the breach below 671. Four power up trend lines were
staunchly in place to support the remaining three downside capture targets.
Note the momentum support level in the lower panel. It is here that we are
expecting Gold to find a bottom, and possibly make a quick run back up to
print another fresh high.
From Elliott Wave technology's near
Term outlook thursday june 8, 2006 One-month
later two things occurred. First, Gold breached our second level downside
target at 618, and secondly, the momentum support line we anticipated showed
signs of failing. This in concert with the smaller wave structures, suggested
Gold had high probability of entering our downside capture window between
571 and 513 before a tradable bottom would occur. Note only three power up
trend lines remain. Again, rarely fixed at shorter-term intervals, we continually
attempt to adapt potential degrees to major wave terminals.
From Elliott Wave technology's near
Term outlook Tuesday june 13, 2006 A
couple of days later, Gold gives way big time to the downside. Down $38.80
and 6.42% on the DAY! At this point, with only two power-up trendline supports
remaining, and the market nearing full on oversold, we began to advise subscribers
of a pending bottom. The last remaining common retracement level of 560.40
was still not captured!
From Elliott Wave technology's near
Term outlook Thursday june 15, 2006 Within
a day or two, the bottom was in. Our 560.40 target achieved, and only one
remaining power uptrend line remained to hold the 542.27 low.
From Elliott Wave technology's near
Term outlook thursday sep 28 2006 This
chart provides example of shorter-term trade set-ups within heavily congested
markets. Here we highlighted a short-term bullish pattern buy trigger at
582 with a predefined upside capture target between 601.98 and 607. Take
note of the high and low for the day. Not bad for a quick $20 move up in
the Gold price. You can see how we are beginning to carve trendline parameters
over the price action. All of which provide ongoing visual guidance to key
support and resistance levels along with price targets attached to many of
them.
From Elliott Wave technology's near
Term outlook Friday october 6, 2006 In
early October, we issued a clear buy signal against the 559.30 low. We hit
this particular low on the first go round. PS. Note what the market did post
the last pattern buy signal containing the 601-607 price targets. It dropped
like a stone from the 607 level! Upon doing so, we were in "buy" mode all
over again.
From Elliott Wave technology's near
Term outlook tuesday nov 28, 2006 Nearly
two months after the buy signal from $559, Gold was up nearly $100 and looking
overbought. Earlier that week we issued an sell alert from the 648 level.
This one proved to be early in very short order.
From Elliott Wave technology's near
Term outlook thursday nov 30, 2006 Within
a couple of days after our first sell probe, Gold tacked on another $10.00
striking above a smaller 5th wave price projection. It did so upon a bullish
break out pattern targeting $712 on the upside however, a commonly missed "price" divergence
occurred in process. Despite this and an upside capture window of 686-724,
we advised traders to fade the 654 high with a secondary sell probe. Note
the changing evolution of the wave labels and associated "degrees" as time
and price unfolds.
From Elliott Wave technology's near
Term outlook tuesday jan 9, 2007 In
a little over a month, the previous guidance to fade the 654 high paid off
handsomely! By January 9, Gold touched down below 607 into a resting capture
window. Another "price" divergence flagged a fresh "buy probe" against the
603 in January of 2007. Note the introduction of concurrent alternate counts
in the faded color labels.
From Elliott Wave technology's near
Term outlook friday feb 23, 2006 Our
long position guidance against the 603 low at the start of 2007 was performing
brilliantly into February. At a retest of the July high in early February,
we were again early with a sell probe from the 680 level. This guidance gave
some quick downside to the tune of 10.00, but popped right back up to fresh
highs within a day's trade! Shortly thereafter, we issued another sell alert
against the 691 high. This one turned out to be the money shot.
From Elliott Wave technology's near
Term outlook Friday Mar 2, 2007 Our
last chart shows the market did print a marginal high above the 691 sell
signal on 2-23, but by less than a dollar. Within five days of our guidance,
Gold was off its signal high by nearly $50.00! NOTE: Do be advised; though
the above chart is fairly recent, THE NEAR TERM COUNT HAS CHANGED significantly.
In closing, it is important to recognize that we do not "predict markets;" instead, we take ownership of the dynamic price action as it unfolds, and do so in such a way that no black box algorithm could possibly match. Doing so impartially, allows us to anticipate direction and formulate astute and measured guidance based on the daily evolution of price. As evidenced in the above presentation, the resultant competitive advantage is priceless. Trade Better / Invest Smarter...
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Joseph Russo
Copyright © 2006-2008 Joseph Russo Image rendition and html coding Copyright © 2000-2008 SafeHaven.com « BullionVault.com
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Joseph Russo, presently the chief editor and analyst for Elliott Wave Technology,
has been studying Elliott Wave Theory, and the Technical Analysis of Financial
Markets since 1991 and currently maintains active member status in the "Market
Technicians Association." Joe continues to expand his body of knowledge through
the MTA's accredited CMT program. Having passed the Level I examination
in November of 2004, Joe is now preparing to begin study for his Level II
exams. Upon successful completion of an exhaustive level III examination he
will have earned the industries highly regarded designation of Chartered Market
Technician.
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