RE: Minimum Value $4.40 + Share
ELLIOTT WAVE GOLD UPDATE III
By Alf Field
October 24, 2005
In August 2003 I published an Elliott Wave gold price forecast
that targeted a price of $630 as the peak of the first major wave
in the new gold bull market. Incredibly, that forecast still seems
to be on track and seems to have a decent chance of being
achieved.
The original August 2003 forecast is reproduced in full in the
appendix to this article.
One major flaw developed in the forecast and this needs to be
examined. In a second article, dated 23 September 2004 when
the gold price was $405 (“Elliott Wave Gold price Update II”), my
expectation then was for gold to rise rapidly to $500 without a
serious correction. This rise was expected to be followed by a
16% decline to $420. The final upleg to $630 was anticipated to
follow the correction to $420.
By early November 2004 the gold price had risen above $430,
making a new 16 year high in the process. Immediately the gold
market gathered a head of steam and by 2 December 2004 had
reached a PM Fixing of $454.2. The market looked set to rocket
straight up to $500 but instead was hit by an avalanche of selling
that stopped the rise in its tracks. The dashed lines on the chart
below depict the forecast rise to $500 and the subsequent sharp
decline that never happened.
Chart updated to 21 October 2005.
It is all very well to speculate on the source of the large selling in
early December 2004 and to say that the gold price “should”
have risen to $500. The fact is that it did not rise to $500. What is
important now is to determine whether the correction from
$454.2 on 2 Dec 2004 was of the correct order of magnitude to
be classified as Wave IV in my original forecast, i.e. the 16%
decline anticipated from the peak of Wave III. For the following
reasons I believe that we can conclude that Wave IV is of the
correct magnitude and was completed some months ago:
1. With the price amplitude of Wave III being sub-normal, it is
reasonable to expect that the price amplitude of Wave IV would
also be sub-normal;
2. The length of time covered by the Wave IV correction, 7.5
months from early December 2004 to 15 July 2005, is the
longest correction in the bull market;
3. The correction has taken the form of a triangle which is often
the shape of fourth waves, and this is Wave IV;
4. The rule of alternation has been observed as Wave II was a
quick zig-zag while Wave IV is a long drawn-out triangle;
5. The lowest price reached during the correction was $411.1 on
9 February 2005, only $9 from the forecast target low of $420;
6. The low point of the fifth wave in the triangle, which marked the
end of the triangle and which is also the point from where the
next upleg would be measured, was $418.3 on 15 July 2005,
less than $2 from the ideal forecast target low of $420.
If this is indeed the case, that Wave IV is complete and is of the
correct magnitude, then we can attempt a forecast of the smaller
waves constituting Wave V. The market appears to be busy with
the minuette waves constituting Wave (i) of Wave V, as follows:
I suspect that the minor waves in Wave V will be similar to those
in Wave I, as first and fifth waves are often similar. The following
is the analysis of the actual minor waves in Wave I:
The full analysis of the first major Wave 1 of the bull market
would then look like this:
The alternate forecasts are offered because the preferred
analysis of Major Wave 1 has Wave III as 41.9%, the smallest
gain of the 3 main impulse waves, which a No-No in Elliott Wave
terms. Alternate 1 thus has Wave V equal to Wave I in dollar
terms while Alternate 2 has Wave V at just less than Wave III in
percentage terms.
SUMMARY
Despite the lack of adequate price amplitude in Wave III, it
appears that Wave IV was of adequate magnitude and that Wave
V probably commenced at the $418.3 Gold Fixing of 15 July
2005.
A possible break down of the minor waves in Wave V is depicted
in the above forecast. The gold price forecast made 2 years ago
thus still has a good chance of producing the $630 peak (plus or
minus $20) anticipated for the peak of the first major Wave 1 of
the bull market. If this is achieved, it should be followed by the
largest correction of the bull market, something in the range of
20%-25%, implying a pullback to around $500 (Wave 2).
This would be a normal technical development as once gold
gets above $500, it will be creating 24-year new highs with a
base at $500. A “good-bye kiss” return to the $500 level would
not be an unusual development.
LONGER TERM OUTLOOK
We can now allow ourselves a brief look at the longer term
possibilities for the gold price. IF the target price for Wave 1 of
$630 is achieved and IF the subsequent price correction in Wave
2 returns the gold price to $500, THEN we can speculate on the
possible magnitude of the next big upleg in the gold bull market.
The first major Wave 1 would be approximately 2.5 times the
starting level of $256 ($630 divided by $256 = 2.46), so the
minimum level that we can forecast for major Wave 3 is 2.5 x
$500 = $1,250. Third waves are often the strongest in a
sequence, so it is possible that Wave 3 could be as much as 4
times its starting level (2.5 x 1.618 = 4), providing a target of
$2,000 ($500 x 4) for the peak of major wave 3.
Before we get too excited about the wave 3 forecasts, we should
wait and see how the shorter term forecasts work out.
Alf Field
ajfield@attglobal.net
24 October 2005
APPENDIX:
The following longer term forecast (which was published on 25
August 2003 when the gold price was $360) appears to remain
in force. No corrections have been made to this analysis:
This would leave the analysis of the larger order of magnitude
5-wave sequence looking like this: