I believe that gold has traded in a repetitive ABCD pattern since the inception of its secular bull market in late 2001. The C wave of the pattern has characteristically concluded with a parabolic, near vertical ascent of price. We are currently in a C wave and I expect that our immediate future will witness a truly exciting and hair raising parabolic advance that will likely take gold to $1,600.
This study will show you each of the C waves since 2001, and conclude with our current situation.
One of the fascinating aspects of gold's progress from $260 in December 2001 to today's near $1,400 level is not only this repetitive ABCD pattern (seven times so far), but also the use of the 50% Fibonacci measurement to define the half way point of each parabolic C wave.
The earliest ABCD patterns were relatively small, both in terms of time frame and size, and relatively simple. They were essentially straight line "near vertical" moves. As the pattern has evolved, the C wave morphed into larger and more complicated structures while maintaining its fundamental and well- defined mold. Following the near vertical straight line, C waves introduced a double top structure, followed by the use of bull flags and then the consolidation pennant. The present C wave appears to have morphed into a gigantic three phase super structure, surpassing all previous C waves in complexity and size.
So let's begin our study with a look at the first C wave - in 2002.
Right from the very first ABCD pattern, gold uses the A wave to announce the significance of the 50% Fibonacci level. The top of this first C wave defined the 100% Fibonacci level and the midpoint consolidation of this first C wave occurs at the 50% level.
The second C wave peaked in early February 2003. As with the first C wave, this was very close to a straight continuous shot from bottom to top. The 50% Fibonacci level indeed divided the wave in two equal halves, with the suggestion of a consolidation as several weeks traded above and below that level.
The third C wave peaked in early 2004 and introduced an advanced structure - the double top. This C wave found its beginning following a perfect 38.2% retracement of the A wave and generally consolidated around the 50% Fibonacci level, though not as cleanly as either preceding C wave midpoint consolidations, nor ones to come.
The fourth C wave topped later in that same year, 2004. A relatively brief consolidation preceded this C wave and therefore was not a skyscraper event. In fact, this C wave regressed to the simpler structure of a straight line, characteristic of the first two C waves. The 50% level again saw price weave above and below for a few weeks. Following this consolidation the wave concluded its final leg to the top.
The fifth C wave became the largest C wave to date as it did not peak until May 2006, some 30 months after the preceding C wave peak of late 2004. This time the 50% level acted as a resistance level. Gold created a 2 month long bull flag consolidation just below the 50% level before breaking out and completing a spectacular parabolic rise that took gold to $729. Interestingly, the bull flag continuation pattern was initially introduced into this C wave at a lower price level.
The sixth C wave cleverly uses a new trick in its evolution - the pennant - as a midpoint continuation identifier just at/below the 50% level. Notice how the second and concluding half of the C wave is no longer simply a string of green candles. The bull, as he has aged, has learned to buck. And buck he does! However, the 50% level continued to foretell the ultimate peak at $1,029.
In the introductory paragraphs of this article I mentioned that the current C wave appears to be a gigantic structure that may ultimately be comprised of three phases. Let's now look at the first phase that concluded this past December 2009, then look at the second phase that is still in progress.
This seventh ABCD structure began in October of 2008 with the A wave at $680. As we have seen once earlier, the A wave makes a near perfect 38.2% retracement to get the C wave started at $865. Through a series of ledges this first phase of the seventh C wave rests and consolidates at each Fibonacci level (23.6% and 38.2%) until reaching the 50% level. After spending 4 weeks there, gold makes it parabolic move to reach $1,227 in a little over 4 weeks.
Now let's look at the currently ongoing second phase of this massive C wave and see if we can make a reasonable guesstimate of when and where it will top.
We know that gold's C waves have extensively employed the 50% Fibonacci level. So I am going to guess that it will be no different at this time, than before. That is, the $1,227 price reached in Phase 1 will be identified as the midpoint, or 50% level, of the current second phase.
It turns out that gold is then projected to reach $1,600 during the early/mid part of the upcoming December.
Out of curiosity, I wondered how the current weekly cycle, which began on July 28, 2010, would fare under the 50% concept. It seems that gold's consolidation of the past month could be thought of as a 50% level, a midpoint consolidation. But where would that project price?
The chart says it all. Same place. $1,600.
I guess at this point I should warn every reader that they have read a convincing argument for $1,600 gold, but that anything is possible.
OK. Consider yourself warned.
In the mean time, I am going to invest in gold and related products as though it is going to $1,600 next month.
Best wishes for your trading and investment success.
John Townsend has been a stock market investor/trader off and on for the past 35 years. He is fascinated by all kinds of indicators and has spent many hours pondering technical analysis. John's passion for gold, miners, and analysis is not a profession but a serious hobby. tsiTrader@gmail.com. His The TSI Trader is a website dedicated to the deployment of the True Strength Index (TSI) indicator for buy and sell signals related to gold's secular bull market. The TSI indicator is freely available at FreeStockCharts.