Gold: Elliott Wave Analysis From 1200 To 1350
EWM Interactive | Feb 24, 2019 12:50AM ET
Gold bulls can be very pleased with their progress in 2019 so far. On Wednesday, the precious metal climbed past $1346, bringing its total year-to-date return to 5.2%. Furthermore, gold is up 12.6% from its mid-November low at $1196.
“Uncertainty” is once again the usual reason people use to explain gold’s surge. Trade war uncertainty, flattening yield curve uncertainty, slowing economic growth uncertainty, you name it. But do traders really need to care about all those things in order to predict the precious metal’s advance?
h2 Elliott Wave Analysis Of Gold As An Alternative/h2We don’t think so. The next six charts show that Elliott Wave analysis is more than enough to put you ahead of the next major move, even if it spans three months.
Our case study starts with the 4-hour chart of gold from before the market opened on Monday, November 12th, 2018. After examining the weekly and daily charts, which are also included in our analyses, we thought the bulls were not done yet.
We labeled the three-wave recovery from $1160 as waves A, B and 1 of C, which meant the pullback from $1243 must be wave 2 of C. Second waves often terminate near the 61.8% Fibonacci level, which in this case coincided with the support line drawn through the last two lows. Hence, we expected a bullish reversal for the start of wave 3 of C to the north.
Less than two weeks later, by November 26th, gold had already bottomed out at $1196 and was trading above $1223. Then, our clients received the above-shown chart with the opinion that “the bulls remain on the wheel as long as gold trades above the bottom at $1196.“
h2 With The Big Picture In Mind/h2Regardless of the fact that numerous pullbacks were practically guaranteed to occur during wave 3, the overall outlook was going to remain positive in the coming months, unless $1196 gave up. Twenty days later, there was still no reason for pessimism.
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This chart is from before the market opened on December 17th. As visible, we thought that even though a new high has been reached, there was still plenty of land left for the bulls to conquer in wave iii of 3. Besides, the chart allowed us to identify a new invalidation level at $1211.
Twenty more days later, gold was hovering near $1285 following a surge to the vicinity of $1300 in the first days of 2019. This meant gold had entered a sequence of fourth and fifth waves within wave 3, as shown by the chart below from January 7th.
The third wave is usually the longest wave in an impulse pattern. Since there have been no significant pullbacks between $1233 and $1298, we labeled this move as wave 3-orange of iii of 3. So, it made sense to prepare for a couple of fourth and fifth waves within wave 3.
By January 28th, gold was already trading above the psychological mark of $1300. Wave 4-orange took a while, but it stayed safely above the top of wave 1-orange at $1251, so the bulls were still in the driving seat.
h2 Finally, Wave 3 In Its Entirety/h2In the end of January, wave iii of 3 was almost over. A pullback in wave iv followed by another rally in wave v were supposed to complete wave 3. On February 20th, gold exceeded $1346. The updated chart below shows how a complete third wave looks like.
Wave 3’s 150-dollar journey to the north took a little more than 3 months. There was no way to predict the exact length of its impulsive sub-waves, nor the exact depth of its pullbacks.
However, knowing how wave 3 should develop allowed us to track its progress and stay ahead of the next phase in its impulsive structure. That is a much better approach than trying to decipher the contradicting macroeconomic and political news, which the media produces by the dozens every day, don’t you think?
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