Watching Gold fall to recent lows over the past few weeks has been heartbreaking for Goldbugs. We know the real value of Precious Metals has continued to be under-appreciated over the past 24+ months – even though Gold has rallied from $1165 to over $2085 (an incredible 79%). The recent 15% decline in Gold has shaken some investors away from the longer-term opportunities, so we wanted to share our research and highlight some simple Elliot Wave structures with you.
My research team and I believe the recent downward price trend in Gold is an ideal setup for an Intermediate Wave 4 pullback of a broader Wave 3 advance. In other words, we believe Gold is in the midst of a broad advance cycle that may eventually push price levels to $5000 and above. But, we’ll focus on right now and what we believe is setting up from a Technical Analysis perspective.
The first thing to remember about Elliot Wave Analysis is that we must consider the broad market trends, the intermediate market trends, and the short term wave formations. With almost all types of Technical Analysis, we focus on different time perspectives of price trends and setups to help us better determine opportunities and outcomes.
Simple Elliot Wave StructureS Explained
For those of you unfamiliar with Elliot Wave theory and structure, please pay attention to the example chart below.
Generally, price advances or declines move in three basic shapes:
(1) A straight rally or decline with no visible price corrections within it
(2) An ABC wave formation – which consists of an Impulse wave, a moderate correction, then a final conclusion wave that reaches a new price high or low.
(3) An ABCDE wave formation – which consists of an ABC wave formation followed by an additional moderate correction wave, then another final conclusion wave that reaches a new price high or low.
In the first example, above in black, you can see a very simple detail of the overall (ideal) five total waves that make up every major Elliot Wave structure. In theory, every price advance or decline attempts to follow this structure, BUT, of course there are variances in this structure that often take place.
This is where the second example of a wave, the more detailed wave structure in blue and red, shows how Wave 1 was completed with an ABCDE wave structure and Wave 2 was completed with an ABC wave structure. As you continue to explore how these waves set up and interlink with one another, you can start to imagine how many variations there are within each wave structure. Every segment in each of these examples is considered a Wave Leg, thus every one of these could continue to generate multiple smaller wave structures as we dig deeper into the data.
Elliot Wave Analysis – quarterly gold chart
In this first Quarterly Gold chart, below, we are focusing on the broader long-term trends in Gold. This chart spans nearly 30 years of Gold price activity and the purpose of starting with this chart is to highlight the Elliot Wave setup showing the Wave 1, Wave 2, and new Wave 3 formations. Our research team believes the end of the DOT COM Equities appreciation cycle (near 2000) prompted a Gold appreciation cycle that lasted until 2009~10. The Excess Phase (Blow Off Top) that took place between 2010 and 2013 represented the “unwinding” of the enthusiasm for Gold at that time. Then, Gold entered a depreciation phase that lasted from 2009 to 2018~19. That is when we believe a new Gold Appreciation phase begun and is still currently a driving force in the continued rally in Precious Metals.
If our research is correct, we are in the midst of a longer-term Wave 3 upside price trend that has recently completed an Intermediate Term Wave 4 downside correction. This suggests that we are now setting up for an Intermediate Term Wave 5 rally that may be equal to the previous Wave 3 rally (roughly $920). If this takes place, Gold will likely end the next rally phase near $2700 – where it will enter a new corrective price wave formation – completing the initial Intermediate-term Wave 1 leg.
Confirmation of this setup would come when a solid price bottom sets up above $1725 in Gold and when we see price levels rally above $1975 – establishing a recent new price high. As technical traders, we understand that Elliot Wave and Fibonacci Price theories inter-twine with one another. Elliot Wave theory is a process of attempting to mathematically illustrate Fibonacci Price theory at work – creating patterns in price. We believe there are underlying energy frequencies in each wave that prompt current and future price rotations and targets. We are still researching and learning about much of this technique as we further develop our Fibonacci Price Amplitude Arc theory and others.
ELLIOT WAVE ANALYSIS – WEEKLY GOLD CHART
The following Weekly Gold chart highlights where we believe a bottom in price must setup to efficiently confirm the Wave 4 correction structure and begin to prompt a new Wave 5 advance to $2700 or higher. Any future breakdown in Gold price levels on this chart below $1715.50 would potentially negate the Wave 4 structure and set up a potentially deeper price correction phase (possibly the end of the longer-term Wave 3 setting up for a deeper corrective wave). As long as Gold prices bottom and begin to rally anywhere above the $1715.50 level, we believe the Wave 4 corrective wave is validated – prompting the start of a new Wave 5 advance.
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Given the foregoing, it is important that we watch that $1715.50 level as Gold prices continue to hammer out a potential bottom and this broad Elliot Wave pattern continues to unfold. If our research is accurate, then we will see a big upside price trend begin somewhere near December 7, 2020. Our Fibonacci Price Amplitude Arcs (visible on this Weekly chart) show where we believe energy frequencies align (see the starting point of the GREEN ARROW). These alignment areas in price energy typically result in potentially strong price impulse moves.
Any bottom forming near the MAGENTA drawn levels, before the GREEN & BLUE energy frequencies would align with our thinking that Gold has retraced nearly 50% of the recent trend (from the March 2020 COVID lows to the recent highs) and therefore may be setting up for a Wave 5 advance targeting $2700 or higher.
As exciting as this may seem, please remember this is a very long-term forecast for Gold. This is not something that will happen in a few days or weeks – this trend will likely take place over weeks, months, and years. Still, if you consider the implications to the global market and potential trends, then you will begin to understand that a rally in Gold to levels above $2500 suggests that certain pressures and uncertainties will continue to unfold over the next 24+ months in the US and global markets. Gold rallies when fear and uncertainty are present in the markets.
In closing, it may be a very good Christmas rally in Gold to close out the end of 2020. There will be lots of great trading opportunities in Gold over the next few years as the price of Gold works through the different waves discussed above. If you want to stay on top of the price action in gold, silver, and equities then sign up to The Technical Trader newsletter and trade alerts today.
Chief Market Strategist
NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research. We are not registered financial advisors and provide our research for educational and informational purposes only. Read our FULL DISCLAIMER here.