I believe that gold has traded in a repetitive ABCD pattern
since the inception of its secular bull market in late 2001. The C wave of
the pattern has characteristically concluded with a parabolic, near vertical
ascent of price. We are currently in a C wave and I expect that our immediate
future will witness a truly exciting and hair raising parabolic advance
that will likely take gold to $1,600.
This study will show you each of the C waves since 2001, and
conclude with our current situation.
One of the fascinating aspects of gold's progress from $260 in
December 2001 to today’s near $1,400 level is not only this repetitive
ABCD pattern (7 times so far), but also the use of the 50% Fibonacci
measurement to define the half way point of each parabolic C wave.
The earliest ABCD patterns were relatively small, both in terms
of time frame and size, and relatively simple. They were essentially
straight line ‘near vertical’ moves. As the pattern has evolved,
the C wave morphed into larger and more complicated structures while
maintaining its fundamental and well defined mold. Following the near
vertical straight line, C waves introduced a double top structure, followed
by the use of bull flags and then the consolidation pennant. The present C
wave appears to have morphed into a gigantic 3 phase super structure,
surpassing all previous C waves in complexity and size.
So let's begin our study with a look at the first C wave - in
2002
Right from the very first ABCD pattern, gold uses the A wave to
announce the significance of the 50% Fibonacci level. The top of this first C
wave defined the 100% Fibonacci level and the midpoint consolidation of this
first C wave occurs at the 50% level.
The second C wave peaked in early February 2003. As with the
first C wave, this was very close to a straight continuous shot from bottom
to top. The 50% Fibonacci level indeed divided the wave in two equal halves,
with the suggestion of a consolidation as several weeks traded above and
below that level.
The third C wave peaked in early 2004 and introduced an advanced
structure - the double top. This C wave found its beginning following a
perfect 38.2% retracement of the A wave and generally consolidated around the
50% Fibonacci level, though not as cleanly as either preceding C wave
midpoint consolidations, nor ones to come.
The fourth C wave topped later in that same year, 2004. A
relatively brief consolidation preceded this C wave and therefore was not a
skyscraper event. In fact, this C wave regressed to the simpler structure of
a straight line, characteristic of the first two C waves. The 50% level again
saw price weave above and below for a few weeks. Following this consolidation
the wave concluded its final leg to the top.
The fifth C wave became the largest C wave to date as it did not
peak until May 2006, some 30 months after the preceding C wave peak of late
2004. This time the 50% level acted as a resistance level. Gold created a 2
month long bull flag consolidation just below the 50% level before breaking
out and completing a spectacular parabolic rise that took gold to $729.
Interestingly, the bull flag continuation pattern was initially introduced
into this C wave at a lower price level.
The sixth C wave cleverly uses a new trick in its evolution -
the pennant - as a midpoint continuation identifier just at/below the 50%
level. Notice how the 2nd and concluding half of the C wave is no longer
simply a string of green candles. The bull, as he has aged, has learned to
buck. And buck he does! However, the 50% level continued to foretell the
ultimate peak at $1,029.
In the introductory paragraphs of this article I mentioned that
the current C wave appears to be a gigantic structure that may ultimately be
comprised of three phases. Let's now look at the first phase that concluded
this past December 2009, then look at the second phase that is still in
progress.
This 7th ABCD structure began in October of 2008 with the A wave
at $680. As we have seen once earlier, the A wave makes a near perfect 38.2%
retracement to get the C wave started at $865. Through a series of ledges
this first phase of the 7th C wave rests and consolidates at each Fibonacci
level (23.6% and 38.2%) until reaching the 50% level. After spending 4 weeks
there, gold makes it parabolic move to reach $1,227 in a little over 4 weeks.
Now let's look at the currently ongoing second phase of this
massive C wave and see if we can make a reasonable guesstimate of when and
where it will top.
We know that gold's C waves have extensively employed the 50% Fibonacci
level. So I am going to guess that it will be no different at this time, than
before. That is, the $1,227 price reached in Phase 1 will be identified as
the midpoint, or 50% level, of the current second phase.
It turns out that gold is then projected to reach $1,600 during
the early/mid part of the upcoming December.
Out of curiosity, I wondered how the current weekly cycle,
which began on July 28, 2010, would fare under the 50% concept. It seems that
gold’s consolidation of the past month could be thought of as a 50%
level, a midpoint consolidation. But where would that project
price?
The chart says it all. Same place. $1,600.
I guess at this point I should warn every reader that they have
read a convincing argument for $1,600 gold, but that anything is
possible.
OK. Consider yourself warned.
In the mean time, I am going to invest in gold and related
products as though it is going to $1,600 next month.
Best wishes for your trading and investment success.
John Townsend
The
TSI Trader
John
Townsend invites you to visit his website at www.theTSItrader.blogspot.com. He usually offer a few
posts each day on his market observations, often comment on the
particular stocks he is currently trading, and tries to show ways to use the
True Strength Index indicator to make some sense of where the precious metals
and their miners are heading. Please do not hesitate to contact him.
