The Bull is Back!

Part three of Dance of the Bulls ended with the following quote  “The band is playing and the bulls are dancing again. It is this author’s view that this dance will last for a few more years, for we are in a Super Bull Cycle. Gold has been doubling in price about every 3 years. That is certainly a reason for the bulls to dance.”

That was written on May 31, It was my belief at the time that we had just completed corrective wave 4, and had entered into the final impulse wave 5. Gold was trading at 1530 and by the first week of June would trade to a high of 1553. That would be the first of two attempts to breach the historical high of gold at 1577. Trading to 1557, gold would fail again to trade above that historical top. This was followed by a correction as sellers moved the market to a low of 1478.

I was under the assumption that we were in our final fifth impulse wave and these two failed attempts to make new highs prompted me to speculate that we were witnessing a ”truncated” or a “failed” fifth wave. As you can see from the chart below, once gold broke below the intermediate trendline it became obvious that a correction was in play.

Finding definitive support at 1475 ( 38% Fibonacci Retracement), gold again began to trade higher. If we were witnessing a truncated fifth wave, any rally would have to be short-lived at best, because a fifth wave must be followed with a correction. This was not the price action we witnessed.

I believe that Elliott wave analysis is as much of an art form as it is a science. However in this instance it is more appropriate to state that as market technicians we don't always get it right, as was my case. Assuming that wave 4 was over would prove to be incorrect. That being said it was necessary to reconcile the current price in gold with the Elliott wave count

The chart below has a revised Elliott wave count. My assumption now is that we had been in a protracted fourth wave correction lasting almost 2 months. Wave four will then be characterized as a correction composed with  ABC corretive pattern. This assumes that gold is able to break back above the support line is seen in chart 1. We will have finally entered the final impulse wave five.

However if gold finds resistance again around 1550 to 1557, and begins to trade lower, we could have a different wave pattern. Taken directly from R.N Elliott's writing the chart below contains an example of a pennant or triangle correction. This scenario would only play out if in fact gold is unable trade back above 1557 .

Price Forecasting Models

My current belief is that we have finally completed wave four and are currently in wave five. Based upon that scenario the chart below illustrates potential upside targets based upon Fibonacci extensions.

By using traditional Fibonacci extensions we can provide some insight as to possible upside targets for gold. Typically wave 5 of an impulse phase can be equal to wave 1 or .61% the size of wave 1. Wave five can also exceed both waves one and three and be the dominant wave of the impulse phase. I currently believe the highest probability in terms of an upside target for gold is between 1608 and 1614. This is based upon Fibonacci extension harmonics. As you can see from the chart below this price point (1608 – 1614) corresponds to a 50% extension from 1308 to 1577 with the starting point of 1475. It also corresponds to 100% extension of wave one.

There can be no doubt that we are currently at a decisive and incredibly important price point for gold. After failing twice to trade to a new record highs, gold is once again trading above 1550. If gold is able to close above 1550 it has nowhere to go but to retest 1577.

There is one caveat: it is a fact that bears hibernate in the winter so they can be active during the summertime. I believe this to also be evident with gold bears. Typically we see gold prices trading under pressure during the summer months. Certainly the gold bears have been active over these last two months.

But one only needs to take a look at the big picture to understand how futile any long-term bearish stance is. As seen in the chart below, a monthly chart of gold, since 2008 gold has been on a consistent, dependable and predictable ascent to higher prices. Are the Bulls dancing, just look down at your feet.