Elliott Wave Gold Update XI

Alf Field
14 Feb, 2007

"The time has come," the Walrus said, "to talk of many things."- Lewis Carroll in "Alice in Wonderland"

The time has come to talk about the imminent major upward surge in the gold price. The stars are aligned, the fundamentals are in place, the technical situation is positive and the Elliott Wave analysis suggests that wave 3 (the strongest wave) of the current sequence is underway. The gold price should soon move to new highs for the current bull market.

I am actually not sure whether the stars are positively aligned, but the fundamentals have certainly been positive for years. Conventional technical analysis reveals that a "Teacup and Handle" formation has formed. This is a formation which has a long record of being a powerful base from which major up-moves can be anticipated with great confidence. The PM London fixing of $664.50 on Friday 9 February 2007 was an upside break from the Teacup and Handle base formation. This is a technical buy signal indicating sharply higher prices ahead.

The Elliott Wave analysis appears to be on the positive track anticipated in Update X. The gold price is in the early stages of wave 3 of wave I, which should be the strong upward surge in this sequence. Indeed, it could be wave iii of 3, making it even more powerful. The following chart is the updated picture of the London PM Gold fixings:

The near term target price for gold from the Teacup and Handle base is approximately $760, a level that would accord well with a possible peak for the Elliott wave 3 of wave I, the wave that is presently underway.
In Update X it was explained that the likely peak of wave I would be $870, from which point a 16% correction should occur. The expectation was that there would be 2 corrections of approximately 8% on the way from the $560 low to the anticipated $870 peak. The size of these corrections is estimated from the rhythms found in major wave ONE, which lasted from the $253 low in 2001 to the $725 peak in May 2006.

One of the difficulties in interpreting markets using the Elliott Wave technique is in determining the order of magnitude of corrective waves. As an example of the problems faced, the first important correction since the October 2006 low is the recent correction from the $648.7 high on 1 Dec 2006 to the low of $608.4 on 10 Jan 2007, based on London PM Fixings.

This was a decline of $40.3, or a loss of 6.2%. This is exactly midway between the anticipated 4% size of the minuette corrections and the approximate 8% size for the minor corrections. Was it a minuette or minor correction? Depending on one's interpretation it could be either ­ with widely differing forecasts emerging as a result.

Fortunately the problem (in this instance) was clarified by examining the size of the correction in terms of the 2 month forward Gold Comex prices, which are depicted in the chart below. In this case the correction was from $654.8 on 1 Dec 2006 to $603.6 on 5 Jan 2007. This is a decline of $51.2, or 7.8%.

Consequently we can be reasonably certain that this correction is the first of the 8% minor magnitude corrections expected on the way to approximately $870. The second 8% correction is expected after the peak of the current wave 3, which as forecast above, approximately coincides with the price target of $760 as determined from the Teacup and Handle formation.

It is comforting to see the 8% correction in place as it is additional confirmation that the $560.7 low last October was indeed the low point of the correction from May 2006. It also confirms that the action since October has been the early part of a major new upleg and a continuation of the gold bull market.

The following is the forecast template for the entire extent of Major Wave THREE as depicted and explained in Update X:

We are currently in wave I of major wave THREE. We can now insert the first two minor waves of wave I and make a rough guess at the remainder of wave I as follows:

If this forecast is correct, some exciting times lie directly ahead for the gold market.

Warning: There is still a small possibility that the current up-move is wave B of a much bigger correction from the May 2006 peak. If the market rises sluggishly instead of powerfully, especially as the price approaches $680-$700, one should bear this possibility in mind. A rise above $725 would eliminate this residual concern.

12 Feb, 2007
Alf Field

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