Grabbing At Golden Straws

Almost on a daily basis, we are bombarded with calls for a bottom in the dollar and a top in gold. Of course, at some point these calls will be right, but once gold broke out above the February high and the dollar broke down below the August low, the balance of power shifted from the gold bears to the gold bulls. Now, I am seeing calls for a top in gold because it has traced out a 5 wave movement from the August low. I question the validity of that interpretation.

If the form of the move from the October 2008 low was a flat (3-3-5), then the breakout from the triangle should have been down, which is what I originally expected when I went short after the February 2009 high. However, this is not what happened at all as gold broke out to the upside. In order to satisfy the necessary symmetry with wave (A) of the unfolding pattern, gold needs to complete some sort of 3 wave pattern, or combination thereof, in wave (C) from the August low. This means that the advance from the August low would have to be 3, 7, or 11 waves, and therefore, 5 waves is not a completed pattern.

In addition, we would normally expect the time of wave (C) to be approximately equal to the time of wave (A). Wave (A) was 80 trading days, while wave (C) is only 58 trading days to date. I would expect wave (C) to be at least 80 trading days as well, or 1.382 to 1.618 times 80, which is 111 and 129 trading days, respectively. We also have the seasonal pattern for gold which is normally bullish in December and January.

I think it would be premature to exit long positions in gold at this time for intermediate term traders. Until we see a lower high, I will give gold the benefit of the doubt and expect higher prices. When wave Y of (C) is complete, it would be prudent to take at least partial profits. If and when wave Z of (C) is complete, I will exit long. Wave Y projects to at least 1145. While wave (C) would equal wave (A) at 1246.

I have also seen a wave count showing a series of 1s and 2s with gold going to the stratosphere. This is not a reasonable point of view either. While the dollar is likely to go lower down to the 72 area. It will not go down forever, and once it turns in earnest, gold will probably top as well.

I may eat crow on this analysis, but I believe it is correct.