Saturday, July 12, 2008

Elliott Wave Count on Gold - III

The Elliott wave count on Gold which I updated last time is in progression now. The prices moved up swiftly to $968 in spot markets beginning another up move in the long term structural bull market. On daily charts the count on Gold is now showing an impulsive wave developing to the upside. The 3rd wave of this impulse is in progress and has reached nearly its threshold before giving a correction.

Lets look at the graph first.

The prices may touch level of $980 in the near term with crucial support now building at top of wave 1 i.e. $935.5. A smaller degree impulse is also in progression which has a target of $985. With two important fibo projections at $980-$985 markets may take a breather there. In the best case projections scenario a short term pop to $1002 is also possible.

Though the daily charts reflect an impulsive pattern developing and momentum to last upto $1000 or so, the weekly charts are quite the opposite. The weekly graph looks as if the gold prices are in a corrective wave 'B' of a higher degree flat or expanded flat correction.

The a-b-c correction which was very evident has been followed by another patten which looks like corrective and not impulsive. This may sound contrary to what I wrote on the daily charts above. However since we are into the corrective wave 'B' the smaller degree 'c' wave would be an impulse as it is in the direction of the higher degree correction. Have a look at the graph -

If we keep this graph in mind, we should be very cautious at levels of $980 to $1002 for pull backs. Though the wave '5' of the new impulse shown in the daily charts above may stretch beyond previous highs the overall picture is still corrective and not one of a new bull market in Gold.

Though the confidence in gold bulls is at a peak and I also feel that gold is in a long term bull market, but currently its not the time to be very bullish but to be cautious. Intelligent traders are always running scared.

The USD has been hammered against the Euro yet again. Euro gave a break out of the triangle pattern formed. The prices suggest that Euro might make a new high in weeks ahead but the overall momentum picture has deteriorated significantly. There is a serious lack of momentum and this would be the last leg up in Euro after which it will enter a prolong period of weakness. Euro may top out at around 1.64 against USD.

There has been huge inflow of funds into energy and precious metals index funds. Investors and investment banks were caught napping when equity markets tumbled and very few investors and traders could gain significant returns because of being too 'late' in the commodities spike.

I feel there is not much meaningful upside potential left in these two sectors and the next big bull run is evolving in base metals market. With huge energy costs and spiralling wage inflation combined with lack of resources and shortage of investments in production facilities, industrial metals may present decent returns in next few quarters.

There is some more pain left in the US housing markets but I feel the bottom is very near. At least in terms of market expectation we may see a bottom in housing in place by the third quarter of the current CY. If US housing markets bottom out, it would mark an important bottom in zinc prices as well. So keep an eye on it.

Sahil Kapoor

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