Gold’s going down, but not for long

Gold bugs have been disappointed again, says John C Burford. But they could be smiling again soon.

Gold bugs have been disappointed once again.

Gold reached the giddy heights of $1,300 on January 22 (up from the $1,130 low last November) before crumbling, along with many related stocks.

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You could see it coming when articles popped up proclaiming gold was back on track to make it to $3,000. The tone was certainly more bullish until recently.

What's coming next? Let's look at the wave on the daily chart.

150211-MWT-01

This is always a corrective pattern, and indicates that the next move will be down.

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The rally to $1,300 also hit the Fibonacci 78% level of wave 5 and was one of the factors that made me quit and take my profits.

Does all this mean new lows are now certain? After all, the A-B-C is a clear signal, is it not, that the downtrend has resumed?

Not quite!

Normally, that would be a correct conclusion, but the A-B-C rally to date appears too small compared to the record bearishness at the November low. Also, the A-B-C rally has only lasted three months, which is much shorter than the other major waves.

I think the odds are good that we could see a resumption of the rally above $1,300.

How will that work out? Here is a possible outcome:

150211-MWT-02

Either scenario implies the market could find a bottom and then rally above $1,300 in either a large wave 3 or large C wave.

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That's one possibility. Let's zoom in on the smaller scale one-hour chart:

150211-MWT-03

The market hasn't broken my lower tramline so far.

In addition, the market is at the important Fibonacci 50% level.

That level's important because there are accurate bounces off the 23% and 38% levels on the way down. When you see that, you can rely on the lower 50% and 62% levels as providing support.

It's looking more and more likely that the market is about to stage a bounce If that happens, the upper tramline comes into play as the next line of resistance.

Of course, breaking up through it would indicate the rally was back on and a rise towards the $1300 level would then become much more probable.

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