Wednesday, 3 July 2013

Wedge city on Gold chart plus Hyperbolic Downtrend chart and Fibonacci targets - 2013-07-03

Now I have been looking at the possibility of the gold price going in to a potentially bullish falling wedge pattern starting from the downmove on April 12th/15th.

There are a couple of wedges that I drew on the chart in the previous post but I have changed this a bit to include the larger original wedge that is already acting, plus a second mlight blue and very extended wedge that might be forming. Both could take the price down further before the potential snapback which in these patterns often undoes the entire move and could send gold back to the start at $1590. The lower limit for the darker wedge is $1030 and that for the lighter wedge is $680, both key levels (the high and the low respectively from 2008).

The above chart gives an idea that, despite bullish interpretations of the rally on Friday 28 June to Monday 1 July, gold is still in a steep downtrend channel.

To give an overall perspective, we need to look at the long term chart showing the entire bull market and this correction in relation to it. A chart since 2006 is shown below.

The behaviour in the recent correction is completely different from anything that has happened in the bull market since 2001. The price is in a hyperbolic downtrend with almost constanly increasing rate. Maybe it is like the NASDAQ and Dow stock index crashes in 2000-2003 in some ways, for example the crashes in March 2001 and September 2001 in those indices. They were followed by very sharp V-bounces and then rollovers and moves to lower lows -but they were climactic type events as is this gold crash. This present correction is huge even when compared to the 2008 event and it has not yet been arrested.

The lower line on the chart is the line between the 2005 low at about $427 and the 2008 low of $680 extended to the present day, suggesting a target around $1040 if the long term uptrend is not to be broken.

Finally, a couple of charts showing Fibonacci targets.

First, my updated  long term chart of gold from 1967-2013, with the move to $1280 included - of course, this needs updating again, because gold went down further to $1180!
Finally, my trading screen which has an excellent chart of the entire bull market since 1999, with almost idential levels shown on it. I cannot understand why so many technical analysts are stuck looking at fibonacci levels relating to the upmove from $680 to $1920 in 2008-2011. Can they not see that this current correction is on a larger scale than all the previous ones, in time and amount? Surely we need to consider this as a correction of the entire bull market since it started in the 1999-2001 timeframe. 
Gold has already now exceeded the 38% correction level at $1285. The 50% level is at $1088 in now in play. Look and see that the 61.8% correction level goes to $891, which equals the futures market high on 21 January 1980!
The 1968-2013 chart above shows this clearly. There is an amazing Fibonacci or Golden Ratio relationship vbetween the 1980 top ($890 in April 1980 futures), the 1999 bottom ($253) and the 2011 top ($1920), with an almost perfect 1.618:1 ratio above and below the $890 level. Does this mean the $1920 was a real long term top? We have to wait and see.

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