Riding the Gold Waves

By Dave Banister

NEW YORK (TheMarketTrendForecast.com) --Back in the fall of 2011 I was warning my subscribers and the public to prepare for a large correction in the price of gold.

On the technical charts the metal had experienced a primary wave 3 rally from $681 per ounce in the fall of 2008 to the upper $1,800s at the time of my warnings in the fall of 2011. A 34-month Fibonacci rally was sure to be followed by an eight- to 13-month consolidation period, or what I would term a Primary wave 4 correction pattern.

We have seen gold drop at low as the $1,520s during this expected eight- to 13-month window, but at this time it looks to me like a break over $1,630 on a closing basis will put the nail in the wave 4 coffin.

I expect gold to rally for about eight to 13 months into at least June 2013 and our longstanding target has been in the $2,300 per ounce arena in U.S. dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area, but I am using my low-end targets for reasonable accuracy.

This 5th wave up can be difficult to project because 5th waves in stock or metals markets can be what are called "extension" waves. This means they can have a potentially much larger percentage movement relative to the prior waves 1 and 3 of the primary bull market since 2001.

You can end up with a parabolic move at the end of wave 5, where those $3,000 plus targets are possible. I expect the 5th wave to be about 61% of the amplitude of wave 3, which ran from 681 to 1923, or about $1,242 per ounce.

If we were to apply that math, we come up with $767 per ounce of rally off the wave 4 lows; $1,520 plus $767 puts us at $2,287 per ounce, or roughly $2,300 an ounce low-end target.

In summary, crowd behavior is crucial to the next coming movement in gold and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the bulls.

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