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Gold and the US Dollar Trend Forecast

Commodities / Gold and Silver 2013 Mar 10, 2013 - 04:02 PM GMT

By: David_Petch

Commodities

I have been retooling the Elliott Wave count of gold, because the longer-term picture just did not seem to fit with what was actually occurring. The proposed count is not likely to be viewed with smiles from many gold bugs (myself included), but the saving grace is what lies beyond 2014. This fits with the primary focus we have for slowly accumulating gold and silver producers that pay dividends and are in politically secure areas of the globe. For those not familiar with Elliott Wave analysis, please try to read the information below and the “future” structural implications that lie ahead once the pattern completes. For gold beyond 2014, it is very bullish, but involves sideways price action for another 18 months or so. The US Dollar Index is likely to top out within 2-3 weeks and decline into the October time frame, before rising anywhere to anywhere from 84-88 by late 2014. Subsequently, analysis below will guide what lies ahead.


The mid-term Elliott Wave count of gold is shown below. The entire pattern of gold is corrective, so there will be no clean impulsive pattern that develops during its bull market run. Changes to the wave count have wave a ending in 2007 and  wave b still forming since then. Wave b is forming a running flat, which is just over 2x the price move covered during wave [A].b. Based upon this count, wave [C].b is forming a terminal impulse, which is a triangular structure. Wave (A) formed a zigzag, with wave (B) a flat and wave (C) underway at present. I have avoided using impulsive labelling to not draw confusion to the terminal impulse of the pattern ((C).[B]) Based upon this count, it is not likely for waves (D) and (E) to complete until sometime between late 2014 and potentially early 2015.

Once this pattern is complete, the expected move in wave c should be at least 2 times greater than the net distance from low to high of wave b...the distance was $1200, so the minimum upside price objective is $2400/ounce beyond $1600/ounce, or $4000/ounce. Please not that this is the minimum upside price objective...the higher upside objective is 2.618x 1200, or $3140/ounce above $1600/ounce, or $4740/ounce. Given the extreme move expected, a 3.5x move of $1200/ounce, or $5800/ounce is the lowest level that will likely be seen.

The running correction underway if labelled correctly just indicates the financial tremors that are going to be seen in the financial system beyond 2014. A high price of gold may sound sexy and make people think that they will be rich, but the amount of turmoil around us all will be hard to stomach. All I can say is to own gold and silver stocks in friendly mining jurisdictions because when gold goes over $4000/ounce, some countries will likely nationalize the mines. The measured move after wave (C) completes is $1800/ounce and if taken out, becomes $1970/ounce, which is likely to be put in place around October 2013. Subsequently, gold should correct with the broad stock market indices, but not as hard, given the corrective phase is now over 18 months....likely back down to around $1600/ounce as illustrated below.

Figure 1



The short-term Elliott Wave count of the US Dollar Index is shown below, with  wave [iv].C.(B) thought to be forming at present.  Expect wave [iv] to last another 5-7 trading days before one  final push higher in wave [v].  Wave (A) that ended in September 2012 was thought to be an elongated zigzag. Wave (B) has formed an elongated flat (3-3-5), which generally occurs as an entire leg of a triangle or as a segment of a leg within a triangle (most likely a segment, as wave (A) was an elongated zigzag, which also generally forms in triangular structures). When wave (B) completes, wave (C) is likely to be an impulsive move down to around 73-74 sometime between September and October 2013.  Wave [E] seen 25% from the left hand side terminated a triangle we followed since mid 2008. The move after is part of another Elliott Wave pattern thought to be an expanding triangle (currently working on wave [A]). If wave (B).[A] drops to 73-74, then it will complete the first leg of an expanding triangle. The Contracting Fibonacci Spiral has a top in the broad stock market indices around May 21st, 2013, which requires a subsequent sharp move down sometime shortly after (most likely to start in late 2013/early 2014). In theory, this should be accompanied by a sharp move up in the US Dollar Index as debt payment demands put pressure on the upward move.

Figure 2



The forces affecting gold are multidimensional and are not as broad as the US Dollar, which allows for a greater amount . The patterns presented today for gold and the US Dollar Index indicate different observations and expectations than what is presented by most analysts. If gold can close above $2000/ounce, then the wave count presented in Figure 1 would require some modifications. The wave count for the US Dollar Index does not really have another possibility, so some version of what was described is likely to occur between now and late 2014.

Have a great night and back tomorrow with an update of various Horizon Beta funds. Have a great night. This weekend update was primarily created to illustrate the updated count of gold and how it ties into the US Dollar pattern. Updates this week will provide a shorter term look at gold and a longer term view of the US Dollar to further show how things are likely to unfold.

For further information on the Contracting Fibonacci Spiral, I have an updated article of this theory in the April 2013 issue of Technical Analysis of Stocks and Commodities Magazine. This article covers a much greater depth of the theory than previously discussed as well as an update for when the expected top in the broad stock market indices is due. If there are any questions or comments, please contact us at accounts@treasurechests.info.

By David Petch

http://www.treasurechests.info

I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).

With the above being just one example of how we go about identifying value for investors, if this is the kind of analysis you are looking for we invite you to visit our site and discover more about how our service can further aid in achieving your financial goals. In this regard, whether it's top down macro-analysis designed to assist in opinion shaping and investment policy, or analysis on specific opportunities in the precious metals and energy sectors believed to possess exceptional value, like mindedly at Treasure Chests we in turn strive to provide the best value possible. So again, pay us a visit and discover why a small investment on your part could pay you handsome rewards in the not too distant future.

And of course if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these items.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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