Back in the fall of 2011 I was warning my subscribers and the public via articles to prepare for a large correction in the price of gold. The metal had experienced a primary wave three rally from $681 per ounce in the fall of 2008 to the upper $1,800’s at the time of my warnings in the fall of 2011. A 34 Fibonacci month rally was sure to be followed by an eight to 13-month consolidation period, or what I would term a primary wave four correction pattern.
We have seen gold drop at low as the $1,520’s during this expected eight to 13 month window, but at this time it looks to me like a break over $1630 on a closing basis will put the nail in the wave four coffin. I expect gold to rally for about eight to 13 months into at least June of 2013 and our longstanding target has been in the $2,300 per ounce arena in US dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area but I am using my low end targets for reasonable accuracy.
This fifth wave up can be difficult to project because fifth waves in stock or metals markets can be what are called “extension” waves. This means they can have a potentially much larger percentage movement relative to the prior waves one and three of the primary bull market since 2001. You can end up with a parabolic move at the end of wave five, where those $3,000 plus targets are possible. I expect the fifth wave to be about 61% of the amplitude of wave three, which ran from 681 to 1923, or about $1,242 per ounce. If we were to apply that math, we come up with $767 per ounce of rally off the wave four lows. A price of $1520 plus $767 puts us at $2287 per ounce, or roughly $2300 an ounce low end target.
In summary, crowd behavior is crucial to the next coming movement in gold and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the bulls. Be prepared to go long gold once over $1,630 per ounce and buy dips along the way up to $2,300 into the summer of 2013.
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