Last Monday, I showed that gold was very likely about to stage a sharp recovery. After analysing the waves and placing the most likely Elliott wave labels on them, I concluded that the decline off the 11 March $1,280 high was over, or nearly so.
This was the hourly chart I showed then:
The $1,280 high was my purple wave 5 and the decline off it is the normal three-wave A-B-C down with the C wave in the process of finding its low. I had two options: either the C low was already in, or it would decline one more time to around the $1,190 area before staging a recovery.
My initial target was the $1,200 area, which was the low of the purple fourth wave. This is a typical retracement level where C waves usually terminate and I was on high alert for just such an event.
In the above chart, there is some leeway in placing the purple wave 4 label because following the wave 3 high, the market made a series of slightly higher lows and any one of these is a possible wave 4 low.
And two weeks ago, the market did fall to the $1,208 level, which I considered in the ballpark of the purple wave 4 low – and so I had a strong candidate for the C wave low.
Since then, the market has rallied strongly to confirm the C wave low is indeed now in place:
That places the $1,280 high as my purple wave 1, the decline to the $1,208 low my wave 2 and now the market should be in purple wave 3 that should carry much higher before reversing.
Not only that, but the rally off the 27 March low has waves 1 and 2 (red) and now with the market having carried past the red wave 1 high at $1,245, it is in red wave 3 up.
This is highly important because if correct, we are in a third of a third which is one of the strongest wave patterns in the book. These are waves that take no prisoners, and trying to get on board is akin to catching a tiger by its tail.
But if all of this looks secure, it is not! Right up ahead lies the critical resistance of the Fibonacci 62% level. Even strong bull runs can find getting over this level a tad difficult. And sometimes, budding rallies can be nipped in the bud there.
Not only that, but the blue tramline resistance level lies a little higher. This combination should prove formidable for further gains with the potential for a traditional kiss and scalded-cat bounce back down.
Latest commitments of traders (COT) data still show a large plurality of longs to shorts among hedge funds. But interestingly, the small traders are only slightly long against short, so they are more dubious of further gains. I know I have written some harsh words against hedge funds, but they do sometimes get it right (otherwise, they would not remain in business).
Interest in gold mining shares has suddenly rocketed – as have the share prices.
Many believe the gold recovery is temporary, but look at the stunning moves in a FTSE 100 company, Randgold:
The waves are lining up nicely with those in gold. The big difference is my wave 4 correction was minor compared with that in the gold chart. That indicates tremendous underlying strength.
This is a share well worth following – as is the metal!