The Gold Forecast

Charts one and two (below) both use different technical models and reach very similar conclusions. They also predict similar new record highs.
Last week gold traded to a new record high of 1813 dollars per ounce. Gold hit this price point only for a brief moment, vanishing as quickly as it came. It has since corrected to a low that is equal to a 38% retracement of this last rally (1730). 

Chart one (above) is an intraday chart (360 min.) of spot gold. There are a few basic techniques being utilized to reach its conclusion, the first of which is Elliott wave. According to our current wave count we have just completed the last corrective wave (4). This conclusion signaled the beginning of an impulse wave  (5). The conclusion of this fifth wave will complete not only our intermediate count but our major count, since both will be at wave five. Basic Elliott wave forecasting uses a model which takes the price move and distance of wave one to create a benchmark by which we can forecast the following impulse waves three and five. In simplest terms one possible outcome is that wave one and wave five will be about equal in terms of their price move. As you can see from the chart above if wave five is simply an equal size to wave one we could see gold trade as high as 1865 – 1870.

Chart 2 (above) is a daily chart of spot gold. This chart uses a similar technique that is Fibonacci-based rather than Elliott wave based. In this model we again use a prior impulse wave as our benchmark and then create Fibonacci extensions to forecast possible price targets. In this case we are using a much longer count to accommodate a complete long count wave.

First we measure the price move from “c” to “1” (October 2008 to December 2009). The next step is to extend our Fibonacci sequence to the impulse wave that began in August of 2010. From this data we then can plot both 123% extension and 138% extension. Our 123% extension takes the market to roughly 1809; this was our first initial target. Following a correction that is just completed this last impulse wave will take us to the next logical Fibonacci extension level, which would be 138%. That model creates a price target of 1886.

So, we have two different technical models - one based on a straightforward Fibonacci sequence and the other based upon Elliott wave  - using different data points altogether finding confluence at the 1880 area. Does that mean that gold will trade that high? No. However, the agreement found within these two approaches lends a higher probability that such a target might in fact be actualized.