Sunday, January 11, 2009

Elliott Wave Count on Gold - IX

Lets put the above picture in perspective. In the last update I mentioned that gold has formed an important resistance at $880 to $900 range. Though a severe break came just after the prices declined below $820, it rebounded with strong momentum to $890. I was quite surprised by the upmove in the market and there was hardly any indication of what the wave 'c' was unfolding into. Now with new data coming in I feel gold has formed a potential ending diagonal pattern in its wave 'B' of a double zig-zag ABC. The wave 'c' of higher degree wave 'B' has unfolded into a ending diagonal pattern. Ending diagonals generally lead to severe price movements in opposite direction of their formation.

In the past, this pattern has been accompanied by a double top or a head and shoulders pattern formation. Currently gold will form a head and shoulders pattern on a daily close below $828. A measured move can be targeted to $780 and downwards. However if this market shows weakness at $790-$780 range there is a potential of further price declines to about $640 and $490 over a period of few months.

Gold has performed quite well in these uncertain times but has not created price appreciation benefit for investors. In the last few quarters the inflow into Gold ETFs, coins and bars have reached historic highs with spot price premium hitting new highs. But gold prices have failed to move up even to $900 and above. This points to a heavy selling that is persistent in the market.

As of now gold looks weak and this would be confirmed when prices start trading below $828. However, high volatility is still present in the market with 20-ATR still at 26.4 level. Next two weeks would be crucial for gold price movement.

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