Wednesday, 17 August 2011

Two similar charts - gold and silver a year apart: possible gold target $2690. 2011-08-17 22:22 BST

Take a look at these two charts. Look at the similar features. They are public weekly charts in the gallery view mode for Gold and Silver. i noticed the uncanny similarities a couple of months ago and labelled the features. Then I lost them! So now the breakout has occurred, I re-did them and the similarity seems to gel.

Here they are:

The first feature I noticed was that both charts had a quadruple rolling top formation around the November timeframe: silver in 2009 and gold in 2010. I then looked for other similar features. They are:

1. A new Spring high for the upmove followed by a lower high in an A-B-C type correction;
2: A new rally with a higher peak mid year.
3: The quadruple rolling top formation centred around November.
4: A new May high for the upmove followed by a lower peak in a small A-B-C type correction;
5: A magnificent breakout.

When I heard James Turk and Ben Davies talking about big mid-year rallies in gold for 2011 (James Turk talking about $1800 gold and Ben Davies talking about a +$400 move), I wondered if the similar patterns hinted that gold might have a similar breakout to the one we experienced in silver from August 2010 to May 2011. The gold breakout has now followed in August 2011, true to the pattern. No guarantees that it will match silver's move, but what if it does?

Gold has had its initial breakout and we seem to be in the repair mode of a correction since I made these charts. Gold topped at about $1820 and corrected to around $1725. It has now repaired the price to about $1780. Interestingly, this correction (so far, as of 17/8/2011) doesn't even show up as a single down candle on the weekly chart.

That recent breakout move up to $1820 has a bit of a parabolic look to it. Dan Norcini has said that as the price moved up to $1800, there was considerable covering of short positions. Then there was the correction to $1725 and the subsequent repair to $1780 as of today (17/8/2011). So, where might the equivalent point on the silver chart be? I have marked these points on the silver rally X, Y and Z.

X would be the point where the move in silver accelerated. I called that the November 'Fireworks' in silver around November 5th 2010 with increased volatility. Interestingly, the period after that was a period of increasing silver prices with some small corrections with short covering and long liquidation observed closely by Dan Norcini in his blog at the time. That would be a good parallel to gold right now and was at the $27 price range in silver.

Y would be the point where silver started a potentially parabolic move in the high $30s price range, say around $35 and it had a small correction and consolidation there.

Z would be the really undeniably parabolic move in silver to the top at $49.75 with the large corrections (a $5 drop in one day followed by a double top formed over $49 and the 11 minute $6 plunge to $42 and then price crashing to $32 over the next few days.

However, gold has dropped since reaching $1820 over a few days to $1725 or so intraday and now rallied back more than the Fibonacci 61.8% retracement of the downmove and gone to nearly $1780+. In fact, 75%of the fall has been retraced in the rally. maybe gold is forming a bullish flag pattern (a oennant) or maybe it is going to move through to a new high soon, similar to silver at points X and Y.

The most optimistic scenario would be to say gold is currently at point X ad the rally could last until next May.

So, what might be a target for gold based on these charts?

Start of silver rally was $18. Point X = $25, Point Y = $35, point Z = $40.
X, Y and Z are 39%, 94% and 177% above the starting point.

If we assume gold is at Point X now at about $1780 and the rally started at approx. $1520 (the average of the last short term high and low). Point X is an increase of 17%.. Proportionately therfore, points Y and Z could be at 41% and 77%. On this model, Z would be the top of the rally before a big correction. If gold goes to point Z it could reach :

$1520x1.77 = $2690 by end of May 2011.

Do your own due diligence! No advice is meant or implied by this blog. I have long positions in gold and am excited about it right now.

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