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For Gold Traders, a Fibonacci Road Map

EST

What does Fibonacci analysis predict for Comex gold over the coming year?  We recently heard from a skillful practitioner of the dark arts, “Mestre Socrates,” who sees $1490 an ounce by around next May. But there’s a chance the path will not be smooth, he cautions, since prices could first dip as low as $1012 – more than $100 beneath current levels.  That would represent a great buying opportunity, however, according to Socrates – a place where bulls could back up the truck.  How confident is he?  Socrates notes that gold’s long-term price movements have been precisely foreseeable on the basis of Fibonacci sequences that have traced out cup-and-handle formations.  “Gold appears to have a predictable trading pattern of a new high, a slam down to the previous Fib level, reworking back to the previous high, a dull six-month ‘handle formation’ period, and then a two or three-month rally to a new Fib level. This has given workable projections for the comex gold price years in advance.”

Socrates studied Fib numbers a decade ago with Larry Pesavento, a well-known technical analyst. “One of Larry’s ‘big ideas,’ ” he notes, “was the particular significance of the 0.786 level, which marked the transition from a simple retracement to a primary bull trend. Furthermore, once breached, a price could take out the 1.00 level and go straight to 1.272. The last major hurdle was to break through the 1.618 level and then ‘the sky was the limit.’ This applied to any financial instrument.”

No Mere Oscillation

So how does it apply to gold?  Socrates provided a detailed account of bullion’s ups and downs from 2003 forward, noting breakouts and cup-and-handle patterns that played out over periods as long as 18 months.  To bring the forecast up to date, the recent move down from $1212 to $1058 was far too big to fit in the oscillation category, so we can surmise that gold is doing another cup-and-handle routine, says Socrates. Where is the low likely to occur?  “Since $1014 was a real resistance level, it appears to be more likely to be closer to the final low than the next Fib number down, $850.”

Gold’s behavior between $725 and $1014 suggests that when gold peaks and starts to form a cup-and-handle, it takes five to seven months to reach the bottom of the cup. Is it about to repeat this behavior?  Even if it doesn’t, says Socrates, and bullion shoots above $1215 tomorrow, that would still be telling us something – “namely that fiat money growth was out of control and that inflation was accelerating. This is such an important point that it is worth repeating – the point in time when gold bottoms relative to the model’s prediction (April/May) is giving you an insight into where we stand in the deflation/inflation debate.

Bottoming Phase

“On the other hand, all other things being equal, the model tells you that during this initial five-month bottoming phase, you can trade gold but should be wary of investing in it unless you’re relaxed about the possibility of a 10% to 15% drawdown. Gold is just ‘doing its thing,’ but from April/May onward it should again be generously inclined toward longer-term investors. And if it prints $1014, then it is a signal for a great $200 bull trade — almost as good as a breakout above $1225 when that finally happens.

“It also gives you a road map for the next 18 months.  To wit, if history repeats itself, gold has to print $1014 on the London fix as a bottom signal.  But this is due no later than May 2010 (it may dip $20-30 below this intraday, but it’s the London fix that counts). May-September will give a nice rally to around $1190, followed by a retracement to around $1110 in December, with $1210 taken out in March 2011 and the fast run to $1490 around May 2011. I am merely projecting the previous time frame here and do not claim to have a crystal ball.  But I should note that I would have done much better in my trading had I listened to this model six months ago.

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amolpatil2k June 13, 2010, 6:01 am

Gold to silver quantity (and also price till recently) ratio has been 1:15 which means that silver is way underpriced. Still why do people regard gold as a (better) safe haven?

CrisisMaven April 3, 2010, 5:09 pm

While I am not completely convinced central banks have played all their last cards in suppressing the gold price by secretly selling to short sellers etc., gold they might never receive back because of the breakout in gold, it is patently obviozs that the gold rally has not yet run its course, is not even in the first leg up really. we certainly see no gold bubble, rather the reciprocal fingerprint of dollar deflation, masked only be the fact t the untrained eye that all other currencies are debased at about an equal rate currently thus giving the false idea the dollar was holding steady somehow.

walt April 2, 2010, 8:31 pm

$100000000000000 [ENTER] – There, now there is $100 trillion in whatever account they want to put it in.

I do not think they have “NO” control. The economy is now floating high above where it should correct to be, because of their control.

Over time, subtly – as slowly as possible, they could continue the current pump for quite a while – given the ignorance & complacency of the American people. I suspect that they will continue to do just that – until we approach significant / hyper – inflation, and/or until the people catch on enough and protest / riot, then the crash, and/or more terrorist attacks.

Thanks.

Walt April 1, 2010, 7:05 pm

Bottom line – the FACT of the matter IS: The price of Gold (and Inflation vs. Deflation) is, and will be determined mostly by what the almost almighty FED decides – having the power – to arbitrarily / artificially set interest where-ever they want (instead of done by a free market) and create money/credit out of nothing in unending amounts. As Marc Faber has said many times – they can create any amount of money – so there’s no way to know for sure which way things will go.

They crash the markets & economy (detering price inflation), use the crisis (this reason) to give huge sums to their banker buddies (supposedly necessarily to support the economy, etc., where it would be truly effective if they were to give it to the people) – turning it all into, simply, a huge transfer of wealth to themselves & buddies. – – Along with steady inflation, uncontrolled naked short selling & massive manipulation of the markets, etc. – is blatant criminal theft (covered up with much confusion – with lots of double talk, thousands of different mind boggling perspectives, analysis, etc.) and this also makes it near to impossible to make legitimate “investments” in the markets and/or businesses – not being able to judge, and have much confidence in where things are going.

They are really, subtly, tho clearly, taking more & more control, and it is critically important, aside of all else, for all to get behind Ron Paul – Audit & get rid of the Fed, and Campaign for Liberty, etc. – – before we lose everything.

&&&&&

Measured against a financial asset bubble with a notional value in the hundreds of trillions of dollars, the Fed and all of the central banks put together are puny and have NO control, only the ability to delay the inevitable deflationary collapse of the financial system. The longer they attempt to do this, the more powerful the eventual implosion will be. And if you think the Fed will ultimately embrace a hyperinflationary debt “solution,” consider first what that would do not only to lenders, but to virtually all institutional conduits of saving and investment. RA

melvill April 1, 2010, 5:30 pm

For RA’s response to my comment: I do subscribe to Rick’s Picks – “they” are not a problem. In the chat room, all those clever people make the actual HP method sound far too complicated for an idiot like me to understand, which is why I have never taken the course.

&&&&&&&

Learning the Hidden Pivot basics is much easier than you think, Melvill, although, as with any other skill, it takes diligence and lots of practice to become more than merely proficient. RA

FranSix April 1, 2010, 5:24 pm

An arbitrary price point will distract from the primary trend. While some will merely point to the large correcton in gold and draw an analogy, it’s more likely that bullion prices will retest the high going into spring, should $1159 be taken out. (weekly)

The COT numbers must be worked off laboriously in the next few months, before a major rally.

Then again, following the $IRX will demonstrate for all that short-term interest rates can decline below zero, and can stay there long enough for a policy-rate change.

Note that most people are worried about long-term interest rate increases on the long end of the curve, due to the onset of sovereign debt risk, while policy makers are cajoling for rate increases on the short end of the curve.

These are two very different animals and at present, the policy rate is twice that of the discount rate on the short end.

A further decline of rates into negative territory will almost certainly serve as a positive risk benefit for bullion prices.

larry p April 1, 2010, 4:24 pm

i am not that old dude -but i did meet Fibonacci once

DonF April 1, 2010, 4:20 pm

Not the most decisive or controversial article lately. So gold has climbed a good bit this morning. I recommend another article. This from zerohedge:

http://www.zerohedge.com/article/exclusive-bank-england-engaged-flagrant-gold-manipulation-interwar-period-new-york-fed-does-

Exclusive: The Bank Of England Engaged In Flagrant Gold Manipulation In The Interwar Period Via The New York Fed; Does History Repeat Itself?

gary leibowitz April 1, 2010, 3:00 pm

If I read this correctly and inflation is “out there” then the stock market should do very well along with gold.

A bull market in stocks and gold for another year or so?
Possible, but IMHO unlikely.

This ‘V’ shaped recovery coming after the big crash stikes me as a classic set up for an even bigger fall. Having a bull market revamp after such a short but devistating bear trend never happened before.

I have been hearing how inflation is the number one enemy of this economic recovery. I find it amusing that inflation talk is going on while deflation is an actuality in some segments.

Oil and Gold have one thing in common. They both “broke out” in a big way during the peak of the last economic cycle. Will commodities lead the way going forward?

The debate over inflation and deflaion continues.

SDavid April 1, 2010, 2:10 pm

My lone argument against this is that Socrates’ analysis took place while banks were heavily manipulating the price of gold, as was pointed out by Andy.

If the people responsible for pushing and pulling the gold price (to levels they arrogantly and illegally deem fit) are handcuffed to some degree, maybe the Fib numbers won’t matter as much as they once did.

Or is that wishful thinking?

melvill April 1, 2010, 2:02 pm

I have lost money during the last couple of months by digressing from my normal trading method, which makes me money, by trying to pinpoint the next down wave of the Dow etc.. I am sure that Socrates is cleverer than me and probably richer. Also I expect Socrates will be proved 100% correct in his analysis. You might think I am rather peeved at losing money. Well… yes of course but also what the last 2 months has proved to me, as a confirmed believer in technical analysis, waves, cycles rather than fundamentals is that as soon as cup and saucer formations, head and shoulder patterns and their like are mentioned it is time to run for the hills.

I re-iterate that I am sure Socrates is right but in the last 2 months I have listened to TA “experts” spotting such patterns rather like a clairvoyant will spot a pattern that I can’t see in the tea leaves [remember tea leaves?] in the bottom of a cup. Sure I am a great believer in the principle of Fibonacci and the Golden Ratio etc. but for trading it is no more precise than a simple technical indicator.

I know that Socrates’ reference is to Gold but TA is TA whatever market you are looking at. Primarily the action [inaction?] of the stock market since mid-Jan has proved to me once and for all a suspicion I have had for several years that Elliot Wave Theory is poppycock [or at least the application of it]. For the last 2 months I have listened to EWT [Enough Waffling Thanks] experts trying to pinpoint the start of the next leg down in the bear market. We’ve had on a Monday “Well today we might have seen the top but it could be tomorrow if you look at the alternate pattern or may be last Friday if we look at the next alternate pattern.” Then the whole charade is repeated on Tuesday and then on Wednesday etc..

I have listened to….“We could have an ending bearish wedge here, an upside down triangle, a diamond, a pattern that is so rare we have had to dig into the history books [straight up – if it is so frigging rare how do you know it‘s a pattern?], an inverse head and shoulders on the 10 minute [Head and Shoulders? What? The only person I ever saw with head and shoulders like that was the hunch back of Notre Dame], a triple lutz triple loop – actually that might be ice-skating but you get the picture.

We’ve had “That is the end of the 5 waves up on Monday.” and then on Tuesday “No this 5 waves has morphed into 9 waves.” EWT experts can’t even agree whether the big picture grand-super cycle down is an ABC or a 123. Stick a simple MACD under the S&P daily for the last 2 months and nowhere [until the last couple of days at least] did it suggest even vaguely the market was going to turn down and yet we have had all those “ending patterns“.

If the PM market is so rigged [proved this week by a very reliable source] why on earth would you buy into it long term [unless you are a pro] – baffles me. If Socrates can spot a “cup and saucer” formation well in advance then I am damn sure Da Boyz can and utilise it to their own ends which means it probably won‘t turn out as expected. Very few [retail] people will make money in gold over the next few years – I suspect the success rate will be akin to making money in put options

The only thing that I will be doing with a cup and saucer is drinking tea out of it – no doubt Socrates will be drinking champagne but I am for the simple life and that goes for TA trading too. Simple is best.

&&&&&&&

Try subscribing to Rick’s Picks, Melvill. Guaranteed to restore your faith in technical analysis. RA

photoradarscam April 1, 2010, 8:39 am

Gold is ready for a move on Thursday, and if not, on Sunday night/Mon morn. The GVZ gold volatility index is showing really tight Bollinger Bands and is at a long-term low. Gold has been building up energy for a while now and it is ready to release.

walt April 1, 2010, 8:27 am

That figures, it’s just April 1st.

The question of the day – will the J.P. Morgan whistleblower story get any air time? What will it take to get the criminals out of our government?
http://www.abovetopsecret.com/forum/thread556388/pg1

walt April 1, 2010, 8:10 am

2 previous attempts it didn’t work, as soon as I say something stupid, it works.

&&&&&

You’re on the air, Walt. What’s on your mind? RA



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