Gold

Short-Term Gold Elliott Wave Analysis

Published 18th July 2018

The current swing to the downside is most likely incomplete within the Elliott wave framework. At least another up-down sequence is missing at this point. At the same time, the grey channel got penetrated on the downside. This action occurred on diverging momentum, which usually triggers a relief bounce of some form. Moreover, positioning and sentiment are drifting further towards capitulation readings.

All in all, it appears like we’re going to see a big bounce in gold somewhen during the remainder of this year. However, the evidence is too thin that a reversal occurred already.

Published 11th July 2018

The Gold Elliott wave perpetuated a 3-wave structure to the upside since our last update. A corrective bounce since our wave (iii) label became more likely. We continue to expect Gold trading lower short-term after the correction pattern completes the entire bounce.

Last but not least, a lower odds chance remains that minuette wave (iii) extends. This is especially valid if we see a strong selloff with confirming momentum. All in all, the analysis further below remains fully valid.

Published 4th July 2018

The precious metals complex sold off during the past few weeks. Gold formed a downside trend, which we depict in grey on our charts. Price action penetrated this trend channel to the downside during the past few days. Nevertheless, Gold has not reached into capitulation terrain yet. Pundits are still cheering to buy the dip and forecast a big bull run. Sentiment and position gauges signal neutral to slightly bearish tendencies.

A bullish opportunity will eventually appear. However, there is very thin to non-existent evidence that current trend to the downside is complete. Hints such as a fourth wave or a trend reversal in the EUR/USD rate would be highly helpful in this regard. We do not witness such evidence at this point in time. Therefore, we expect the short-term trend to continue to the downside despite a potential bounce extension.

Mid-Term Gold Elliott Wave Analysis

Published 14th March 2018 & amended 4th July 2018

Gold probably shows an impulse from the 2011 highs to the downside. It ended with a contracting diagonal in its 5th wave. An impulse is always followed by another motive wave. However, an upside correction probably unfolds before. The correction that started 2015 looks too small in terms of time and price progress.

Currently, we are witnessing a corrective rebound from the late 2015 lows. Wave action is choppy and overlapping since then. The pale pink trend channel surrounds this correction. It looks like a double three correction that interrupts the corrective bounce to the upside. Double three corrections tend to be complex and sideways. A triangle could be tracing out that eventually resolves to the upside.

Whatever structure eventually shapes on the chart, it is not a complete Elliott wave pattern as we publish this. Hence, the correction within the pale pink trend channel continues most likely sideways for the months ahead.

Long-Term Gold Elliott Wave & Fundamental Analysis

Published 7th March 2018

Gold probably shows a complete pattern of supercycle degree into 2011. Its first spike appeared during the US civil war. We interpret that as cycle wave I. The subsequent period shows a correction that lasted for half of a century. It fits the character of a complex sideways correction. It ended roughly at the same time as the US economy started growing from the Great Depression. The subsequent sharp rise took once again half of a century. This was the steepest portion of the recorded gold price progress. Therefore we are dealing here probably with a third wave. The subsequent fourth wave correction took 20 years and shows a zig-zag pattern with a B-wave triangle. This fits neatly into Elliott’s alternation guidelines regarding a complex second wave. Gold prices took off around the new millennium once again. They came to a stop in 2011. The fifth wave shows roughly equidistant progress to the first wave. We call it complete as long as we do not record a fading 3-wave drop from the top.

There are little fundamental arguments on why gold should continue to rise. Industrial use is quite slim. Gold is mostly used for electrical connectors and this accounts for less than 10% of new gold production. The vast majority goes into consumption and investment with a share of more than 90%.  The investment case is particularly interesting. There is a widespread belief that gold is a great protection against inflation. Well, it isn’t!

Gold produced significant “real losses”, which means inflation-adjusted losses on a very regular basis. The periods 1850-1870, 1890-1920, and 1935-1970 recorded heavy devaluation for gold in real terms. Each of this periods experienced a drop of more than 50% in the value of gold in real terms! That’s still nothing compared to the 1980-1999 period. Gold devalued by roughly 80% in real terms during this period. Hence, gold is not a reliable protection against inflation at all.

Our conclusion is that we entered a secular bear market for gold in 2011. It will mark the biggest devaluation seen if our analysis is correct!

 

Technical Analysis