Tuesday, November 25, 2008

Elliott Wave Count on Gold - VIII

I have maintained my bullish outlook in gold for quite a while. In a presentation this year I expressed the view that gold price would rally to $1200 along with the rising USD. Since September gold is up nearly 12 percent and USD Index is up nearly 13 percent. Though both the markets have behaved in an expected manner, the volatility has led to very little trading being profitable. Overall I still feel that the major trend for gold has still not ended and it is resolving into a much stronger trend for a larger time frame.

In the last one month gold prices have rallied up from a low of $680. Elliott wave analysis in gold has given quite a few counts and there is a possibility that we may seen one more low before the next move up.

In my previous post ( Gold Update ) I mentioned that we may have seen the low of $734 as the important bottom in gold. But as mentioned gold prices closed below $730 and made a low of $680. The rise in gold prices which took markets up to $934 came in three wave and the next fall was also in three ways. Take a look at the graph -

In my view a major bearish pattern has been formed at $935 and unless prices go above $950 this latest count will remain my most probable count. On a weekly graph the gold price count looks like this -

We are currently in the 'C' wave of wave 'B' of the second ABC zig zag in gold. The USD has broken down and gold prices have been moving independent of this fact. Any major reversal in USD can lead to severe weakness in gold prices. USD has entered a strong upmove and has formed a bottom for this decade. Long term trend in USD is decisively bearish and in gold decisively bullish. Medium term trend can see the reversal of trend. I am writing this at a point where gold prices have shown immense strength. From a market sentiment point of view I think all market participants have become bullish.

Huge volatility in prices is generally a sign of market weakness. Gold has seen huge amount of buying from a lot of investors and amid the 'Financial Armageddon' gold prices have failed to make a new high. Overall I feel gold prices would find a bottom at $550 if they are unable to hold $640 on a weekly closing basis. On a relative comparison basis gold would be a steal at $600 range for the long term investors. My long term targets of $1200 and above remain the same. But prices need to resolve meaning fully to reach these prices.

In the very short term prices face immense resistance at $832 and $854. If prices close above these levels gold might rise to $880 to $900 before falling to sub $700 levels. I feel any bearish pattern at $850 and above should be used for initiating a bearish price objective on gold.

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