Where is Gold Going?

By: Robert McHugh | Sun, May 25, 2014
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Since early April 2014, Gold has been forming a classic sideways symmetrical triangle, shown in the chart below. Symmetrical triangles are known as continuation patterns, meaning they are pauses within an ongoing trend. The direction of prices heading into this sideways triangle pattern will be the same direction prices leave this sideways pattern. This symmetrical triangle pattern is relatively small compared to the larger trend in Gold, which is up (which we will discuss later), and is inside a smaller declining trend. The chart below shows that a declining trend began in Gold around March 17th, 2014, when a top occurred which we identify as wave d-up, within a five wave pattern. The fifth and final wave, e-down started at that time and Gold has been inside this wave e-down ever since. The symmetrical triangle since early April 2014 is the pause halfway through the wave e decline. Once this triangle is complete, Gold will continue its journey lower over the short-run.

This small symmetrical triangle has taken almost two months of time, and is labeled small degree wave b within a three wave decline for e-down. The decline from March 17th started with its first of three sub-legs, wave a-down. Then this symmetrical triangle has paused prices within the decline, wave b triangle. Next is wave c-down to complete e-down. Lots of letters but the chart below shows the move clearly. This first of three sub-waves within e-down, wave a-down, took about 100 points off Gold. It is reasonable to expect the break down from this sideways symmetrical triangle will also shave another 100 points off Gold, taking Gold toward 1,200, maybe a bit lower, since these sideways pauses typically occur at the halfway point within a trend (in this case a declining trend).

Gold Daily Chart

If we study our next chart, which is a close-up of this wave b symmetrical triangle from early April, we see that this pattern is close to completion. Every rally attempt from April has been stopped by the declining upper boundary line. Every declining attempt from April has been stopped by the rising lower boundary. It is a perfect symmetrical triangle. Gold should begin a 100 +/- point decline within the next week or two, and that 100 point decline should last around a month.

Gold Daily Chart 2

But lets look at a larger picture of Gold. How does this decline from March 17th, 2014 fit inside the larger picture for Gold?

Gold Daily Chart 3

Since September 2011, Gold has been in a large corrective decline, which we label wave 4 down. This corrective decline consists of a series of overlapping moves, including two triangles. This type of price action is not characteristic of an impulsive price decline (primary trends progress with impulsive waves, not overlapping waves), which is confirmation that Gold has not started a new primary Bear market. Gold has been correcting its primary Bull market over the past three years. This correction is coming to an end. A look at the charts above tells us that the last leg of the small decline from March 17th, 2014, will finish Gold's corrective decline from September 2011. We are that close to seeing a bottom in Gold that will not be seen again for years. Gold will soon resume its primary Bull Market. We carefully monitor Gold's price action, forecasting and trading its moves, with charts and analysis with key trendfinder indicators for our subscribers at www.technicalindicatorindex.com You can get a free 30 day trial subscription and check out our daily forecasts for Gold by clicking on the Free Trial button at the upper right of the home page. We also trade Gold's ETF, GLD, in our Platinum Trading program.

Gold Weekly Chart

Gold Monthly Chart

In the charts above, we show the big picture for Gold. Gold bottomed July 20th, 1999, wave II's bottom. Since then, wave III up has been one of the all-time greatest Bull Markets in Gold. Gold remains in a well-defined rising trend-channel, and our Wave mapping analysis says no, the Bull Market rally in Gold is not over. Wave III so far has taken Gold up 1,670 points to the September 6th, 2011 all-time high of 1,923, which was a 761 percent gain in 12 years. Since then, Gold has been correcting.

There are many reasons we do not believe Gold has topped, and believe that Gold has much higher to go. Wave threes that are not part of a triangle pattern are impulsive, meaning they move the price vertically. These impulsive wave threes (in this case wave III) are made up of five subwaves. Below we can clearly see that wave III so far has only produced four subwaves. This means there has to be a fifth wave coming, a rally leg. In stocks, typically wave threes are the most dramatic. In precious metals, typically, wave fives are the most dramatic. Below we see that wave 4 is mature, and wave 5 up is next. We believe the consolidation over the past three years has been a wave 4 pattern, which includes a descending triangle pattern. Wave 2 shown below was a zigzag decline. The principle of alternation suggests that the patterns for corrective waves 2 and 4 should form different patterns. Clearly that has occurred, which legitimizes the above count, and supports the need for a coming wave 5 within wave III.

If the coming wave 5 is to be the most dramatic move, then it will have to take Gold higher by more than the 750 points that wave 1 produced, and likely more than the 1,200 points wave 3 up produced. It suggests Gold should head for a price target of 2,700 to 3,000 when the coming wave 5 up finishes.

A rise above 1,500 would confirm that Gold's next mega-bull market is underway, with an upside price target of 3,000.


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Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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