Whither gold? - Several views on that, including ChartsEdge weekly cycle chart

One of the questions John Murphy answered in his interview aired on Bloomberg tv last night was what he foresees for gold. He answered that it's doing well, that he expects it to get to about 1,000, and that it might even exceed the prior peak of 1033. He didn't elaborate on what he sees for it after that though. Below is the ChartsEdge weekly cycle chart for gold (and if you are a subscriber to ChartsEdge then you know what they are forecasting for it on a longer-term basis).

Before we get to the ChartsEdge cycle chart, let's take a quick look at my chart with some discussion of Elliott Wave, Fibonacci levels and of course channel lines marked. While gold did poke up to a small triangle target, there remains reason to believe that it can still move higher. The technical indicators, as John Murphy also pointed out, still show that gold is behaving well:


Here's the ChartsEdge weekly cycle forecast for gold - looks helpful:

This leaves a question, would a move to levels either at 1,000 or above 1033 be simply a "B" wave, as some Elliott Wave analysts are projecting? or might gold proceed yet higher in a significant Wave V, as Tony Caldaro is showing (see the chart I posted here about that, yesterday)?

On longer-term charts, gold can actually drop in a "C" wave down and remain in big-picture uptrend channel support to vault much higher to Wave V type levels ... but that isn't the point, is it? Our question is whether gold can stay within the channel lines I've marked on my daily and weekly charts of gold, and move up to a Wave V level (whether 1200 or higher)? or has a fourth-wave correction not completed yet, such that we're only working on a "B" wave and then need to see a vicious move in a Wave C down.

Frankly - while I tend to tilt to the idea that the Wave IV correction idea leading ultimately to a Wave V is valid ... I do want to retain the possibility that gold really HAS seen its high for this whole cycle, and that there isn't a Wave V ahead. However, to answer this would require analysis of the much longer-term charts, and that gets into analysis that's very difficult. Partly because much longer-term charts are not well available, and also because that raises questions about currencies, how to deal with the fact that gold wasn't legal to own in the U.S. for decades, etc., etc.

While we're on the topic of gold, let's take a look at the February 13 "Chart of the Day" from the website bearing that name ... and here's what they say about this chart:

Chart of the Day
How significant is this bear market? It all depends on how you measure. When measured in US dollars, the Dow currently trades 44% off its October 2007 record high. However, when measured with that other world currency (gold), the bear market is much more significant. To help illustrate the point, today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 8.4 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the Dow from 1999 to today is down 81%!

Now, just because we're looking at this fascinating chart from Chart of the Day, doesn't mean that we are gold bugs! Gold doesn't always go up - in fact, it did poorly during the 1980's and into the early 1990's - so we don't want to remain long gold if it's going to top out. And we also trade each market individually - meaning, if gold does move down, we're going to be short gold but not necessarily long the Dow Jones Industrial Average. We will want to be short both of these markets, if they are both moving downward at the same time.

As investors and traders, the best advice is to follow gold as it plays out, and if/when it shows that it's topping such as a potential "B" wave top, then don't be afraid to go short. So if a ride down materializes and shows that gold really drops farther then expected, we'll be protected by being positioned correctly. The worst thing would be to position long in the hope of a higher fifth wave up, that either may not come, or may take many more months than anticipated and meanwhile gold flounders at much lower levels. (Similar to the experience of the 1980's and early 1990's.)

We'll continue to fold in long-term analysis of gold as we go. For now, I'm frankly tilting to the "B" wave idea and will play that accordingly, unless and until gold proves otherwise. Looks like the folks at COTs Timer are also cooling off on gold soon, if you read this: S&P 500 Bearish, Data Mixed for Gold (COTs Timer, 2/13/09). And also looks like, for this week at least, the ChartsEdge cycle forecast supports this approach (and I cannot share their forecast for what happens after this week so recommend you subscribe to ChartsEdge if you're curious about that).