-- Posted Monday, 15 February 2010 | | Source: GoldSeek.com
By Hubert Moolman
The gold price reached an all time high of $1226 on 3 December 2009. It has since retreated to $1044 on 5 Feb 2010. I believe this to be the bottom of this retreat, and you will understand why after reading the rest of this article.
Since the high of $1226, gold has actually formed a familiar pattern (fractal). Fractals are best explained visually and therefore I include the pattern gold has formed since 3 December 2009 below:
chart generated on fxstreet.com
As you can see it is an ABC type of correction. It looks like a “U” followed by a “W”.
Below is what I perceive to be a similar correction, which is actually the most recent large correction since gold hit $1000 for the first time.
chart generated on fxstreet.com
Again as in the first, one can see a “U” followed by a “W”. It is interesting that in the first, the “U” is big and the “W” is small, whereas in the second it is the opposite.
Now, the fact that 2 patterns are similar is not a guarantee that they will play out in the same way. One has to consider the context in which both patterns occur in order to better predict what comes next. Also one has to “set” certain confirmation standards such as a break of a trend line or a break of a previous high etc. See my previous article for an example of 2 similar patterns playing out in similar manner after certain confirmation standards were met.
Context
If one considers these 2 corrections, one will notice that both come after a strong rally. They both come after an all time high. Further to this, gold is in a strong bull market which was confirmed when it broke out of the $1000 level last year September. We also have a big head and shoulder pattern of which the target is R 1300 and has not been met yet, but is still valid. We even have a huge cup and handle pattern which has a target of R 1500 plus, which has not been met and is still very much valid.
Confirmation Standard
What needs to happen to confirm that these patterns will play out in the same way? First of all the price must cross the down trend line which is currently at the $ 1100 level. Then of course it needs to challenge the peaks and eventually break the highest. Also very important is that it should not violate certain support, which makes the pattern invalid. What is also interesting is that the forming of this pattern actually confirms the validity of a previous analysis of 2 patterns – see the article linked above.
Conclusion
I expect gold to go over the $ 1100 level this week and confirm the “pattern”. Gold will soon go on and reach the $ 1300 and $ 1500 target. I therefore expect a very strong rally starting this week.
In the longer term, based on similar analysis as above, it will be 1979/1980 all over again in the gold market with a bit of a twist regarding scale or time (more on this and what this means in future articles and my blog).
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May God bless you.
Hubert Moolman
You can email any comments to hubert@hgmandassociates.co.za
-- Posted Monday, 15 February 2010 | Digg This Article
| Source: GoldSeek.com
