Where Gold and the US Dollar Index are Going

By: David Petch | Sun, Mar 10, 2013
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I have been retooling the Elliott Wave count of gold, because the longer-term picture just did not seem to fit with what was actually occurring. The proposed count is not likely to be viewed with smiles from many gold bugs (myself included), but the saving grace is what lies beyond 2014. This fits with the primary focus we have for slowly accumulating gold and silver producers that pay dividends and are in politically secure areas of the globe. For those not familiar with Elliott Wave analysis, please try to read the information below and the "future" structural implications that lie ahead once the pattern completes. For gold beyond 2014, it is very bullish, but involves sideways price action for another 18 months or so. The US Dollar Index is likely to top out within 2-3 weeks and decline into the October time frame, before rising anywhere to anywhere from 84-88 by late 2014. Subsequently, analysis below will guide what lies ahead.

The mid-term Elliott Wave count of gold is shown below. The entire pattern of gold is corrective, so there will be no clean impulsive pattern that develops during its bull market run. Changes to the wave count have wave a ending in 2007 and wave b still forming since then. Wave b is forming a running flat, which is just over 2x the price move covered during wave [A].b. Based upon this count, wave [C].b is forming a terminal impulse, which is a triangular structure. Wave (A) formed a zigzag, with wave (B) a flat and wave (C) underway at present. I have avoided using impulsive labelling to not draw confusion to the terminal impulse of the pattern ((C).[B]) Based upon this count, it is not likely for waves (D) and (E) to complete until sometime between late 2014 and potentially early 2015. Once this pattern is complete, the expected move in wave c should be at least 2 times greater than the net distance from low to high of wave b...the distance was $1200, so the minimum upside price objective is $2400/ounce beyond $1600/ounce, or $4000/ounce. Please not that this is the minimum upside price objective...the higher upside objective is 2.618x 1200, or $3140/ounce above $1600/ounce, or $4740/ounce. Given the extreme move expected, a 3.5x move of $1200/ounce, or $5800/ounce is the lowest level that will likely be seen. The running correction underway if labelled correctly just indicates the financial tremors that are going to be seen in the financial system beyond 2014. A high price of gold may sound sexy and make people think that they will be rich, but the amount of turmoil around us all will be hard to stomach. All I can say is to own gold and silver stocks in friendly mining jurisdictions because when gold goes over $4000/ounce, some countries will likely nationalize the mines. The measured move after wave (C) completes is $1800/ounce and if taken out, becomes $1970/ounce, which is likely to be put in place around October 2013. Subsequently, gold should correct with the broad stock market indices, but not as hard, given the corrective phase is now over 18 months....likely back down to around $1600/ounce as illustrated below.

Figure 1
Gold Chart
Larger Image

The short-term Elliott Wave count of the US Dollar Index is shown below, with wave [iv].C.(B) thought to be forming at present. Expect wave [iv] to last another 5-7 trading days before one final push higher in wave [v]. Wave (A) that ended in September 2012 was thought to be an elongated zigzag. Wave (B) has formed an elongated flat (3-3-5), which generally occurs as an entire leg of a triangle or as a segment of a leg within a triangle (most likely a segment, as wave (A) was an elongated zigzag, which also generally forms in triangular structures). When wave (B) completes, wave (C) is likely to be an impulsive move down to around 73-74 sometime between September and October 2013. Wave [E] seen 25% from the left hand side terminated a triangle we followed since mid 2008. The move after is part of another Elliott Wave pattern thought to be an expanding triangle (currently working on wave [A]). If wave (B).[A] drops to 73-74, then it will complete the first leg of an expanding triangle. The Contracting Fibonacci Spiral has a top in the broad stock market indices around May 21st, 2013, which requires a subsequent sharp move down sometime shortly after (most likely to start in late 2013/early 2014). In theory, this should be accompanied by a sharp move up in the US Dollar Index as debt payment demands put pressure on the upward move.

Figure 2
S Dollar Index Chart
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The forces affecting gold are multidimensional and are not as broad as the US Dollar, which allows for a greater amount . The patterns presented today for gold and the US Dollar Index indicate different observations and expectations than what is presented by most analysts. If gold can close above $2000/ounce, then the wave count presented in Figure 1 would require some modifications. The wave count for the US Dollar Index does not really have another possibility, so some version of what was described is likely to occur between now and late 2014.

Have a great night and back tomorrow with an update of various Horizon Beta funds. Have a great night. This weekend update was primarily created to illustrate the updated count of gold and how it ties into the US Dollar pattern. Updates this week will provide a shorter term look at gold and a longer term view of the US Dollar to further show how things are likely to unfold.

For further information on the Contracting Fibonacci Spiral, I have an updated article of this theory in the April 2013 issue of Technical Analysis of Stocks and Commodities Magazine. This article covers a much greater depth of the theory than previously discussed as well as an update for when the expected top in the broad stock market indices is due. If there are any questions or comments, please contact us at accounts@treasurechests.info.



David Petch

Author: David Petch

David Petch

Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/