Short-Term Gold Elliott Wave Analysis

Published 16th May 2018

A potential leading diagonal arrived at a critical stage. It penetrated the lower contraction support as it dropped yesterday. A flat could have ended with this action. It could form minuette wave (b). However, there are pros and cons to that interpretation. The pros are a complete Gold Elliott wave pattern of minuette degree as well as a powerful trend support (lasted close to 1.5y). The cons are momentum, headwinds from a stronger US Dollar, and the choppy pattern to the upside.

It is likely that Gold did not complete its correction at the (W)-wave top in 2016. Either we see more upside in form of a double zigzag or a sideways triangle (Y)-wave. The latter does not exceed the 2016 price high before resolving to the downside. The triangle (Y)-wave scenario odds increase if the leading diagonal, which developed in 2017, breaks down. Our base case interpretation shifts to the red count as soon as we see a convincing break of the black contraction support.

Long gold appears not to be a short-term overcrowded trade. However, there is also still room to the downside for more unwinding.

Mid-Term Gold Elliott Wave Analysis

Published 14th March 2018 & amended 16th May 2018

Gold 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. Hence, we expect to see a mid-term drop below the $1,000 figure.

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 zig-zag with alternation between the W and Y waves. A sharp spike characterizes the W wave whereas the Y wave extends the entire correction in time. A leading diagonal is possibly forming the initial motive wave A (minor degree) of the second zig-zag.

The alternative is depicted in red. It shows a double three correction. It consists of a double zig-zag, zig-zag, and ends as a triangle.

Whatever structure currently 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 to the upside. A break of the black contraction support raises odds for a sideways correction.

Our case here is incorrect if the biggest drop in the pink trend channel is a 5-wave impulse. It is unlikely as the count is rather unclean. Moreover, the rally in our wave label (W) appears too small in terms of time and space to be the entire correction for the drop within the blue trend channel.

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