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Elliott Wave Gold Update XXI

Alf Field
6 Aug, 2008

Clearly the gold price has not moved into the strong upsurge expected for Large Wave III, as postulated in Update 20. The decline that started at a London PM fix of $986.0 on 15 July 2008 has already reached $882.0 (5 Aug 2008), a decline of $104.0 or 10.5%.

This decline exceeds that 4%-6% range of a minor correction, which is the magnitude that one would have expected if the market was in the very early stages of Large Wave III. The large size of the present correction suggests that it must be part of Large Wave II, meaning that the gold market has not yet completed the corrective wave Large II. The peak at $986.0 on 15 July 2008 must have been the end of Small B within Large II, with Small C down to complete Large II currently underway.

Wave Count A below is the continuation of the old wave count in Update 20 with a minor change in that the triangle in Small C has been discarded for a more conventional a-b-c format. Under this count the 5 wave up move from $862.2 to $986.0 (15 July 2008) would have been the first minor wave i in the new major up move. Under this count, the magnitude of corrective minor wave ii should have been 4%-6%. Once this level of decline was exceeded, it cast doubt on the validity of this wave count, which is now rescinded.

The revised Wave Count B in the chart below is now the preferred wave count. It reflects the peak at $986 as the top of Small B with Small C still underway.

This count suggests that the gold market could possibly decline to test the lows reached in Small A at the $845/$850 level. Other possible targets for the low of Small C (and thus Large II) can be calculated as follows:

In the new preferred count, Small A declined from $1011.2 to $853.0, a decline of $158.2. If Small C is equal to Small A, the target for Small C would be about $828.8 ($986.0-$158.2).

If Small C is 61.8% of Small A, the decline would be $97.8. (61.8% of $158.2 = $97.8) This places the target low for Small C at $888.2 ($986.0-$97.8). This is very close to the latest PM fixing of $882.0 reached on 5 Aug 2008. Any lower fixing will eliminate this target.

Data updated to 5 Aug 2008.

The good news is that once Small C (and thus Large II) is complete, gold will enjoy the anticipated sharp up move in a "third of a third" situation. The gold market will be in Large Wave III of Major Wave THREE, and they don't come stronger than that.

Corrections are often complex, confusing and difficult to analyse. The current action in the gold price is a case in point. Occasionally in the past, the weaknesses of the Elliott Wave technique have been outlined. It is probably a suitable time to repeat them.

The weaknesses of the EWP are as follows:

  1. An incorrect reading of even a single minor wave can put one on the wrong side of the market for some time.

  2. Corrective waves are notoriously difficult to evaluate and often their conclusion can only be determined after the event.

  3. The exceptions, e.g. 5th wave failures and wave extensions, can lead to some serious mistakes and major lost opportunities.

  4. Often the minor waves are confusing, difficult to interpret and conflict with EWP rules.

  5. It is difficult to comprehend by other than seriously devoted students.

For sake of clarity, the revised naming format for the various waves is repeated once again:

The bull market consists of five Major waves designated ONE, TWO, THREE, FOUR and FIVE. Major TWO and Major FOUR are corrective waves with a 25%-30% magnitude of anticipated decline.

Major upward impulse waves, ONE, THREE and FIVE will each contain 5 Large waves designated in Roman Numerals, I, II, III, IV and V. Large II and Large IV are corrective waves with a 16% magnitude of decline, give or take a couple of percentage points.

Large waves I, III and V will each contain 5 Small waves designated 1, 2, 3, 4, and 5. Small waves 2 and 4 are corrective waves with approximately 8% magnitudes of decline.

Small waves 1, 3 and 5 will each contain five Minor waves designated i, ii, iii, iv and v. Minor waves ii and iv are corrective waves, each declining 4%, give or take 1-2%.

The gold market is in the process of completing Large wave II of Major wave THREE. Once Large II is finished, Large III of Major wave THREE will commence. As detailed in Update 20, this should be a strong upward impulsive wave that could reach to above $1,500 before it is completed.

These forecasts are based on the rhythms detected in the gold market during its early stages. The magnitude of the various corrective waves helps to identify the type of wave sequence underway and assists in pinpointing errors when they occur.

Alf Field

Comments may be directed to the author at: ajfield@attglobal.net

Disclosure and Disclaimer Statement: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments gold and silver bullion, gold and silver mining shares as well as in base metal and energy companies. The author's objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.

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