Friday, 19 April 2013

Chart patterns in gold and silver - H&S / 3 peaks and a domed house - revisited.

Some ideas on charts and targets for gold and silver:

I decided to draw some more lines on old charts from previous posts on this blog and look for the three peaks and a domed house pattern target versus the head and shoulders target (that I put on this gold chart on 12 July 2012) of about $1300 - not that I believed it at the time!

This is what I got for gold: 
$1155 from 3P&DH pattern and
$1300 from the Head & Shoulders.
Compare this with a Fibonacci correction of the entire bull trend :
38.2% : $1283
50.0% : $1087
61.8% : $890.

Note the elegant back test in June 2012 of the Head & Shoulders breakdown at the end of April 2012. The test was passed for the pattern when the price met resistance at $1642.40. Amazing - I should have gone short! However, the price actually reversed and went up nearly to $1800 later in September 2012, so I had assumed that the H&S pattern was caput.

For silver, the three peaks and a domed house formation began at $12.44 so that would be the target for the whole pattern. Yuk.

Reaching $1155 gold and $12.44 silver would give a gold:silver ratio of 1155/12.44 or 93, which would be close to Bob Hoye's old forecast of 100 as a possibility. I think that the Au:Ag ratio got to 84 on the September 2008 crash and actually got to about 93 in the mid-1990s when silver was under $4 per ounce. This would probably, as Bob says, indicate extreme credit distress if it happened.
[Here are my old posts with the original triple / quadruple tops marked from August 2011 and discussing the gold breakout and top:
  • Gold - are we at Point Z already? P&F and daily ch...
  • Two similar charts - gold and silver a year apart:...
  • $1650 gold target reached. Congratulations to Jim Sinclair]

    However, even Jeffrey Christian of CPM Group thinks that gold has bottomed at $1355 a few days ago and will chop sideways for a few years at a higher level before going to new highs. He said on Kerry Lutz podcast that he had expected gold to bottom at $1430. Actually, $1430 was a key resistance level in 2010. See the upper chart, the quadruple top in Nov/Dec 2010.
    I am open-minded as to the trend. In other words, I don't have a clue. I am willing to admit it. I am just playing with figures to see where they lead.
    Targets for gold on a Fibonacci-style correction of the whole 11 year bull trend from $253 to $1920 would be:
    38.2% : $1283
    50.0% : $1087
    61.8% : $890 (the 21/1/1980 futures high!)
    I did a back of the envelope chart for this which I hope to scan in soon.
    The fact that there is a golden ratio relationship between the 1980 high at $890, the 1999 low at $253 and the 2011 high at $1920 means that the top at $1920 SHOULD have been predicted as a Fibonacci price target by someone, BUT IT WAS NOT!!!
    Evidently, no-one looked to apply technical analysis to the entire gold chart of the last 30 years. Maybe they should have done!
    Some analysts persist in drawing the Fibonacci correction levels withr espect to the $1920 top and the 2008 low at $680. Ross Clark the great analyst on is one. He uses 38.2%, 55% (not 50%) and 68.2% correction levels and gets $1450, $1240 and $1155 respectively.
    I don't really see why one would use the 2008 low at $680, because this correction is much longer than that one and seems to indicate more that is it at a higher level than the 2008 correction which was something of a credit crunch deleveraging fluke and the deepest part of the correction was short-lived.
    I feel that this present correction is the first cyclical bear in gold in this post 2000 market cycle and should therefore correct the entire bull market from $253 to $1920 instead.
    If gold were to descend to $1155, it would wipe out the entire [positive inflationary/speculative] effect of Fed's QE2/QE3 Quantitative Easing programs.
    QE2 was announced at $1155 gold and $17.33 silver. Maybe these could therefore the two targets to watch out for, if gold and silver go back 'in phase' with each other. Silver was at that time getting ahead of gold and topped out first. My original comment was that the silver chart was about a year ahead of gold's. Look at where the quadrule top occurred in the charts above. Silver then topped 5 months ahead of gold.
    Will they bottom at the same time? We should not necessarily assume so, unless they are fully back in phase as they were at the 1980 and 2008 highs (and the late 2008 low) for instance.