In 2011 we witnessed one of the most dramatic price increases in gold. We also witnessed what can be defined as one of the most volatile years in the precious yellow metal. Consider that gold surged from roughly $1400 to $1900 all within a single year, only to be followed by a 61% retracement from 1900 to just under 1600 in the last three months of 2011. The final chapter for this year is still unwritten. With two weeks to go we could witness a continuation of this price correction or a New Year rally. However this year ends, one thing remains absolutely clear: the roller coaster ride is far from over.
My yearly forecast last year (December 29, 2010) ended with the following sentence:
"If gold continues to rise in value at this present speed we could see gold trade as high as 1600 dollars per ounce by the first half of 2011."
Gold by the beginning of this year was trading just above 1400 per ounce, the end result of a rally that peaked after a 23% rise that moved the price of gold from 1150 to 1431 per ounce in just under five months. The chart below (chart 1) is from that year-end Kitco.com article.
By the end of July 2011 gold prices had surged to a new record high above 1600 per ounce. Using a combination of Elliott wave and cycle analysis often leads to good technical insight. By measuring time and price over waves, (eight waves composed of five impulse and three corrective waves), we create different forecasting models for price projecting. The model presented in last year's commentary was based on an assumption that the strength of the next impulse waves would remain about the same as the prior one you can see from the chart above that this cycle analysis can achieve excellent results and correctly forecast $1600 gold by mid-2011.
Gold Forecast 2012:
Our current Elliott wave count is at the conclusion of a major fourth wave. The circle in the chart above (chart 2) represents gold's current wave position. At the conclusion of this corrective wave gold will enter another prolonged rally, which will end at an all-time new record high. This major bull run will be followed by a major correction.
Chart 3 (above) labels our major impulse waves 1 through 4. Waves 1 and 3 are the primary impulse waves, separated by two counter waves (2 and 4). According to Elliott wave theory and Fibonacci forecasting models wave 5 has the potential to be the largest of the three impulse rallies. It is from this model that we derived the projections seen in the chart above. The last impulse wave could last anywhere from eight months to just over year. The conclusion and top of this wave I believe could occur as early as the beginning of 2013 with gold prices as high as $2400 per ounce.
The chart above is a 360 min. Japanese average chart. It clearly shows that we have hit a pivot point (c, C) that should be followed with a rally. The most probable outcome is an intermediate rally (4), followed by one final corrective wave, which will conclude wave C.
Over the last two years gold has corrected near the end of the year and bottoms around February of the following year. If this timeline repeats itself this year we should see our final impulse wave begin around the beginning of 2012. This will signal the potential for a crescendo in gold prices unlike any witnessed before. According to Elliott wave theory the best is yet to come and gold will rise to new all-time highs next year.
According to R.N. Elliott this technique is based upon the acceptance that there is a rhythm in nature. This rhythm is guided by universal physical laws that contain order and consistency. Even though we may not understand the cause underlying a particular phenomenon, by observation we can predict that's phenomenon's reoccurrence.
By Gary Wagner,
December 16, 2011
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