Big picture: Gold is a bad long term investment
It is quite interesting to learn on own experience how bullishness in media grows exponentially towards the end of a trend. Gold is the perfect example nowadays. Media is boiling with new extreme forecasts issuing every day: $1,900, $2,000 even $3,000 per oz. Youtube analysts say that hedge fund managers keep increasing their net long positions even while price is falling. I was also caught into hype after famous Ray Dalio interview and his book. But then decided to have a breath and before taking any position to analyze what the real picture is?
1. It is correcting after big uptrend lasted more than a decade and finally ended at $1,922 level in Aug, 2011. Such a long trend should be followed by an appropriately long correction.
2. First wave of the correction (cycle wave count – red marking) ended at $1,050 level has a perfect 5 wave structure. This leads to an idea that correction will most likely get a form of a zig-zag. Flat and triangle corrections – are time consuming and normally shallow in price range, zigzag in its turn is longer in price range and very often corrects 50% - 61% of a previous extend. So what we should expect is 5-3-5 wave structure, but should be long enough in time to be proportional to the decade long previous trend.
3. Second wave (cycle wave B – red marking) should have a 3 wave structure.
• The first sub-wave (primary wave A – green marking) ended at $1,375 has 3 wave structure. That leads to an idea of a flat structure for the cycle wave B, i.e. to be subdivided into A-B-C with 3-3-5 structure.
• The second wave (green B) ended at $1,164 in Aug, 2018 is almost a perfect flat.
• Then wave C (green) started, which must have impulsive 5 wave structure. Wave 3 (blue) of which has ended at $1,557 which is a perfect 1.61 extension of wave 1. So today we are in wave 4 with targets around 50% and 61% correction of 3, $1,412 and $1,380 respectively. Normally correction eats up entire 5th wave of a previous motive wave.
• What is next? With invalidation level at $1,346 (top of blue wave 1) I would expect a final wave 5 (blue) of primary wave C (green) to reach either:
i. $1,578 – which is 1,272 extension of primary wave A (green) or
ii. $1,586 – which is 61% correction of cycle wave A (red) or
iii. Somewhere between $1,620 - $1,660 – which is 0.61 extension of 0-3 calculated from (to be completed) wave 4 (blue).
iv. When? In April 2020 cycle wave B (red) will reach the same timeframe period equivalent to duration of wave A. So might be by that time.
4. Third wave (cycle wave C – red) should start then with a target either 1.2 extension of wave A or 61% correction of the precious bull trend, i.e. somewhere between $800 and $900.
The question – how could gold go down when stock market sentiments are getting worse every day? I don’t know, may be deflation as forecasted by Elliott Wave master Robert Prechter or a strong and healthy stock bull market. But to complete decade long bull market correction it has to go down to that levels, $800 - $900. Despite what Ray Dalio says I am not anymore considering Gold as a candidate for a long term investment.
1. It is correcting after big uptrend lasted more than a decade and finally ended at $1,922 level in Aug, 2011. Such a long trend should be followed by an appropriately long correction.
2. First wave of the correction (cycle wave count – red marking) ended at $1,050 level has a perfect 5 wave structure. This leads to an idea that correction will most likely get a form of a zig-zag. Flat and triangle corrections – are time consuming and normally shallow in price range, zigzag in its turn is longer in price range and very often corrects 50% - 61% of a previous extend. So what we should expect is 5-3-5 wave structure, but should be long enough in time to be proportional to the decade long previous trend.
3. Second wave (cycle wave B – red marking) should have a 3 wave structure.
• The first sub-wave (primary wave A – green marking) ended at $1,375 has 3 wave structure. That leads to an idea of a flat structure for the cycle wave B, i.e. to be subdivided into A-B-C with 3-3-5 structure.
• The second wave (green B) ended at $1,164 in Aug, 2018 is almost a perfect flat.
• Then wave C (green) started, which must have impulsive 5 wave structure. Wave 3 (blue) of which has ended at $1,557 which is a perfect 1.61 extension of wave 1. So today we are in wave 4 with targets around 50% and 61% correction of 3, $1,412 and $1,380 respectively. Normally correction eats up entire 5th wave of a previous motive wave.
• What is next? With invalidation level at $1,346 (top of blue wave 1) I would expect a final wave 5 (blue) of primary wave C (green) to reach either:
i. $1,578 – which is 1,272 extension of primary wave A (green) or
ii. $1,586 – which is 61% correction of cycle wave A (red) or
iii. Somewhere between $1,620 - $1,660 – which is 0.61 extension of 0-3 calculated from (to be completed) wave 4 (blue).
iv. When? In April 2020 cycle wave B (red) will reach the same timeframe period equivalent to duration of wave A. So might be by that time.
4. Third wave (cycle wave C – red) should start then with a target either 1.2 extension of wave A or 61% correction of the precious bull trend, i.e. somewhere between $800 and $900.
The question – how could gold go down when stock market sentiments are getting worse every day? I don’t know, may be deflation as forecasted by Elliott Wave master Robert Prechter or a strong and healthy stock bull market. But to complete decade long bull market correction it has to go down to that levels, $800 - $900. Despite what Ray Dalio says I am not anymore considering Gold as a candidate for a long term investment.
