8 June 2010
Below, I have posted two charts of gold. The intention is to make sense of current price action, as well as to forecast what might be expected going forward.
First of all, I refer you to a previous article, where I argued how the current pattern in gold is similar to an earlier pattern on the gold chart. Please refer to that article, as this short article is a continuation of that previous one. Also refer to the previous email: Gold Action For The Last Week (dated 23 May 2010).
The first chart is from 2007.
I have indicated important days such as:
The beginning of a new cycle, interim tops, and the bottoms following the interim tops.
I have done the same for the chart (current) below.
all charts generated on fxstreet.com
If you refer to the previous article, mentioned above, you will notice that the beginning of the new cycle is highlighted as point 4 on the charts in that article. So, the beginning of the new cycle, as indicated on the above charts, is our starting point.
Thanks to fractals being self-similar, patterns tend to repeat themselves in a similar manner, with the exception of some features—for example, the time scale being different. If I am correct about where the beginning of the new cycle is indicated, on the above charts, then there should be a similarity in price action in both charts after the new cycle.
First interim top – You will see that the first top, on the first chart, occurred on day 6 of the new cycle. On the second chart, the first top occurred on day 13. The price action could be considered as similar, except that there is a difference in time scale (the current scale being about twice that of the first). Note that for purposes of this analysis, we are not interested in how the scale of price action compares.
Bottom after 1st top – This occurred on day 9 on the first chart, and on day 18 on the second chart. The difference in time scale continues to be about 2 (2.1 in my opinion) in magnitude (note the scale would be more accurate if we were using charts of shorter time periods).
Second interim top – This occurred on day 19 (end of 18) on the first chart, and on day 37 on the second chart. Again, it appears that the difference in time scale continues to be approximately 2.1 in magnitude.
Bottom after 2nd top – This occurred on day 20 on the first chart. On the second chart, you will notice that it was on day 42, as I previously predicted. It appears that the difference in time scale of approximately 2.1 in magnitude continues.
Third interim top – This occurred on day 26 on the first chart. If we apply the 2.1 magnitude to 26, then we get 54.6 days. Today is the 54th trading day since the beginning of this cycle, so if the correlation between these two pattern continues, we should see an interim top today, possibly tomorrow before the American market opens. I was hoping that this top should take us to $1280 to $1290. I am still hoping, but unless we have a spike today, it is becoming less likely.
Bottom after 3rd top – Should today or tomorrow be an interim top, gold should take a break, until it hits a bottom on day 58 or 59. I am not sure how big a correction we will have from the third top; however, I do not believe it should be very significant. It should be more like trading sideways to slightly down, but let’s see. My target for the fourth top is around $1330 (day 67 or 68).
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