The Gold Forecast, Running of the Bulls (Part 4): The Stampede
The “Running of the Bulls” is not a mere spectator sport. This year's participants are positioned for solid returns. With a 14% gain since January, this year performance could be nothing shy of brilliant. A considerable number of very prominent traders are involved in the activity. Quietly they have been building their net long positions. Silently they have added to their gold holdings. The belief that we are about to witness a powerful upside move in gold value has inspired some of the savviest mega-investors to move back into the precious yellow metal.
“Quantitative easing in the U.S. and other countries will lead to inflation, spurring more demand for gold as a hedge,” the $23 billion hedge fund Paulson & Co. said in a letter, obtained by Bloomberg news. Filings last week showed that George Soros, the billionaire founder of Soros Fund Management LLC, nearly doubled his stake in SPDR Gold Trust to 85,450 shares from 48,350.
“For the moment there is silence... gold will complete this corrective minor fourth wave and then break out to the upside to retest $1800.” This was how my February 10 commentary began. Almost 2 weeks ago with gold trading just over 1721, my short term forecast based on Elliott wave theory might have seemed overly optimistic.
Today gold has traded to an intraday high around 1785. It now seems almost impossible that gold will not trade to $1800 per ounce. The adaptation of wave theory to gold analysis and forecasting has produced insightful and highly accurate market forecasts.
Gold prices are about $200 higher since we recommended initiating long positions at $1580 per ounce on January 2. Gold has gained about $250 in value during the current rally begun in late December of 2011.
The chart below contains an insert from the chart used in my February 10th commentary. Gold had just traded to an intraday low below 1706. It was about to complete a minor fourth wave, signaling the end of the correction. The subsequent rally could easily take gold prices to $1840 per ounce. Our current lower price target is 1809, based upon a 76% extension of wave one. Typically both waves one and five are equal in size. That would take this current rally to about 1840, before entering a wave two correction.
The chart below is a Japanese average 720 min. chart of cash gold. Based upon an extended fifth wave we could see this rally trade as high as 1870. Historically fifth waves in gold have been extended, quite often exceeding the price move seen in wave one.
According to Elliot wave theory gold will follow a determined bullish cycle. At the apex or conclusion of this major fifth wave, gold will trade to a new record high. This last major bullish wave will be composed of five intermediate waves. We are currently just completing the first of three intermediate impulse waves (one, three and five). This will be followed by a corrective wave (wave two).
Chart 3 above is a daily chart in Japanese average format with the MACD indicator (moving average, convergence, divergence). Clearly visible in the chart is the recent crossing of the MACD lines that indicate a key bullish reversal. This deepens the technical confirmation for the current ongoing rally.
Quantitative easing both in the United States and the European central banks will continue to weaken the Euro and US dollar, when paired against gold. Add some saber rattling in the Middle East and you have strong fundamentals for much higher gold prices. The technical indicators as well as the fundamental data have long pointed to a continuation of this super Bull Run in gold prices.
A confluence of fundamental and technical analysis has emerged. Major investors, money managers, small investors, professionals and individuals alike, have joined the rally. The stampede grows.
Can you hear it?
The Running of the Bulls continues. Indeed, it thunders.
February 23, 2012
Copyright © 2012 Gary Wagner All Rights Reserved.
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