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The Power of the Wave Principle

Gold Bull Market Forecast 2009, 2010 Update

Commodities / Gold & Silver 2009 Nov 01, 2009 - 10:26 PM GMT

By: Nadeem_Walayat

Commodities

Best Financial Markets Analysis ArticleGold has had a stellar run of late, which recently saw Gold pushing to new all time highs on a near daily basis which has galvanised wider mainstream press attention to the precious metal with many gold bugs revising targets ever higher into loftier goals such as $2000 and even $4000+. Gold is one of the most popular asset classes both sought after by readers and written about by market commentators, and one of the most emailed query as to when will I update my original gold analysis of 22nd January 2009 which concluded during mid 2009, therefore this analysis seeks to project the Gold Price trend well into 2010.


Gold Price Forecast 2009 Evaluation.

My original analysis for Gold as of 22nd January concluded with a gold price trend higher into March 2009 towards a target of $960 to be followed by a subsequent decline into mid 2009 as illustrated by the original forecast graph below.

Gold Price Forecast 2009

The Gold price forecast proved to be accurate in terms of the projected impulse waves. This analysis seeks to project Gold forward several months into 2010.

Fundamentals - Inflation Driving Gold?

The problem with this scenario is that the inflation of the 1980's and 1990's did NOT drive Gold higher, so clearly the mantra of Inflation driving gold higher is not correct, especially as we are presently emerged in debt deleveraging deflation, and neither does discounting future inflation expectations hold up, as the Gold bull market is now into its 10th year with a gain of 400% to date.

Gold Secular Bull Market

From 1980 to 1999 Gold fell for 20 years, eventually it would bottom and embark on a bull market, eventually, the signs for this would be not in fundamental data, but contained within the price chart as Gold breaks the pattern of corrective rallies followed by the downtrend resuming to new bear market lows. Now some 9 years later gold has corrected the preceding secular bear market by 50% in time and 100% in price. Therefore gold is not in a new bull market which has already contained many vicious bear markets within it as we witnessed last October, so just bare in mind that this is not a fresh young bull market, therefore much of the talk of waiting for public participation to join in can be discounted.

U.S. Dollar / Credit Crisis

My earlier analysis of a positive trend for the USD clearly implies given the inter market relationship between a two for a weaker trend for Gold. However the risk is that amidst the next phase of the global financial crisis as the bankrupt banks have far from recovered, the next stage of the banking crisis accompanied by recognised inflationary panic measures of money printing which devalues all fiat currencies could give a lift to gold.

Quantitative Easing aka Money Printing Hedging

We are in a new world (for the west anyway) and that is a world of Quantitative Easing, the more the governments of the world print money and monetize debt the easier it is for governments to keep printing and monetizing ever escalating amounts of government debt to cover the government budget deficit gap. What this means is collective currency devaluation where relatively speaking there appears to be little change but in real terms the flood of money has to be seen in rising commodity prices and other scarce resources, after all the supply of resources is mostly known and the population of the world is not decreasing so the demand is known to be on an upward curve. Therefore as long as the central bankers are embarked on the experiment of quantitative easing that should give a lift to gold and other commodities as it increases inflation expectations and therefore inflation hedging using gold and more liquid commodities such as crude oil.

Gold Technical Analysis

ELLIOTT WAVE THEORY - The elliott wave pattern implies we are a strong bull market that has much further to run, i.e. in Wave 4 of a larger Wave 2 advance. This also suggests that the immediate future should see further weakness in gold towards $1,000. However, this is just a correction in the trend that projects to a price of more than $1,100 by the end of this year, with the trend continuing into March 2010 toward $1,200 before a more serious correction takes place.

TREND ANALYSIS - Gold's breakout to a new all time high is a clear signal of further strong advances. The support trendline is at $1,000 and therefore fits in nicely with the elliott wave correction projection target. After the uptrend resumes this trendline is unlikely to be revisited until the second quarter of 2010.

SUPPORT / RESISTANCE - Resistance lies at the last high of $1071, Immediate support lies across the string of previous highs of $1033 and $1007, therefore there is very heavy support whilst very light resistance overhead, which again is suggestive of a mild correction in the current phase of the trend.

PRICE TARGETS - The measuring move off of the $681 2008 low projects all the way to $1,350, which looks set to be an achievable price during 2010. Nearer term immediate targets extend to $1,100 then $1,200.

MACD - The MACD indicator signaled a Gold breakout at $960, with a firm established uptrend. The current correction is inline with that of a mild correction within a strong uptrend.

SEASONAL TREND - There is a strong seasonal tendency for gold to rally from November through January i.e. for the next 3 months. This is suggestive that the current correction is living on borrowed time and may not last much longer

Gold Conclusion

I started off this analysis skeptical of the prospects for gold given the 10 year bull run to date, but the price that is talking off the charts is pretty bullish! enough for me to consider accumulating a position. In the immediate future Gold appears to be targeting a continuing correction towards $1,000, after which it targets $1,200 by March 2010 and a price of $1,350 later during 2010.

Gold Long-term - Gold has broken out to a new high and it does look as though it is going much higher in the long run, there are multiple measuring moves that one can consider, such as 133%, 150%, 1.618% etc. However given the gap in time between the all time peaks, Gold of $2000 plus would now not surprise me.

Gold Bull Market Inter market Implication - Bearish on the U.S. Dollar.

Source: http://www.marketoracle.co.uk/Article14692.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Vinay S
03 Nov 09, 08:19
Bullish Dollar

Nadeem

So are you saying that you have lost faith in the Dollar rally to new highs. Your previous articles said that if Dollar stayed above 75, that could be very bullish for the dollar.

Now you suggest that Gold will move to new highs? Please explain your change in direction?


Nadeem_Walayat
03 Nov 09, 08:58
Faith
Hi

Faith does not factor into my analysis.

NO what I said was a break of 75 would negate the us dollar bull scenerio. Being at 76 some 3 months later is not a sign of strength.

BUT, 75 has held therefore the dollar bull scenerio remains in tact as the update suggests-

http://www.marketoracle.co.uk/Article14691.html


Sarah
03 Nov 09, 17:53
Gold Bull Market

Mr. Nadeem Walayat

I am a layman and do not understand the trends in markets, economics etc. However,I read your article as I have to buy gold between now and August 2010.

what do you suggest according to your analysis of gold price trends, when would it be best for me to buy gold (between nov 2009 - Aug 2010) will the price increase more or is there a possibility that it may come down. the rate these days is 33,347 probably!!!

Please comment.

Regards

Sarah


Wali Yakan
20 Jan 10, 17:07
when would it be best for me to buy gold?

Dear walayat

I have really enjoyed your analysis.Thank you for your great efforts

May I repeat Sarah's question:

what do you suggest according to your analysis of gold price trends, when would it be best for me to buy gold??

best regards



20 Jan 10, 22:49
when to buy gold

Buy in August when it gets just below $700 per oz. Until then just sit back and watch it slide....

H


R S K
23 Sep 10, 21:41
when to buy Gold

Hi,

We are in Mid sept 2010. Can you please tell me whether it is advisable to buy gold at 1300$?

Do you think there would any correction at all?


Nadeem_Walayat
24 Sep 10, 03:35
Gold update

Hi

I'll get around to gold when I have time, its not a priority for me (gold and silver only 5% of total assets).

NW


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