Sunday, July 20, 2008

Elliott Wave Count on Gold - IV

Gold prices declined from expected levels as there was a lot of overhead supply in the market. In my last update I had mentioned -

"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"


"The weekly graph looks as if the gold prices are in a corrective wave 'B' of a higher degree flat or expanded flat correction"

By Friday gold gave up a large part of its weekly gains and ended much lower form the weekly highs. Now the market is poised to take an important turn in the next two weeks. If gold declines below $910 there would be a serious dent in the medium to long term bull market as the severe corrective phase make take time. Since we are just into the fourth wave, the time that market would take to turn up again would be significant. In the current week starting this Monday, if gold prices close below $950 it would mark the first sign of weakness and on a further daily close below $935 prices may enter a strong downward push.

A price channel has been in progress from $880 to $990. A daily close below $950 will break this channel and lead to a minimum price fall of $15 to $935. Take a look

Gold price Elliott wave structure is generally supported by a number of Japanese candlestick patterns. We have formed one at the recent high of $990. On Friday the market closed at the price where it opened, forming a doji. If gold turns higher from this level and forms a morning star, it could seriously test the recent high.

Since the current upmove looks like corrective and not impulsive as I wrote in my previous post along with a graph (, the structure has to be adjusted to new data rigorously.

With crude oil cooling off there has been a lot of money flowing into the long gold and short crude pair trade. The gold oil ratio now stands at 7.4 and actually made a multi decade low of 6.4. On an average this ratio should be around 10 taking into account that in the long term this ratio reduces over time. I went in too early into this trade and it didn't serve well. But I think the time is right to buy any weakness into this trade.

Next important target for gold should be $880 if the current count of completion of wave 'B' in a larger ABC correction holds true. Now we have entered the 'C' wave of a larger degree according to this count. If gold prices rebound to $970 to $980 we should be sellers with a risk potential of $989. If prices do breach this point, there would be a threat to the count and a re-examination of the prices.

I will put up a post on Metals Market Perspective in few days. I note that metals have corrected significantly form their peaks. Still neither copper nor aluminium has invalidated its bullish wave count. Lets see what markets has in store and price will guide us to it.

Sahil Kapoor

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