The month of July has been quite an uncomfortable month in the gold market. The gold price has dropped a whopping $80 since 30 June. Despite this big drop, the formidable uptrend in the gold price is still well intact. Therefore, I believe there is no need to panic.
Before I look at where I think we are, in terms of the gold price, let me first look at some of the expectations I had:
“I am so confident of my gold and silver analysis that I offer to refund your money should gold not hit $ 1300 dollars by 31 July 2010 or Silver $21.50 also by 31 July 2010.”
As you know, this prediction failed, since gold only hit $1265 and silver $19.82. For more on why I think that my expectation failed, see below. Although I am disappointed, I think the failure to reach the expected target, as well as the recent drop in gold, provides more insight as to how fractals work as well as possibly confirming where we are in this gold bull market.
Where are we?
As I have said before (in my Fractal Report), the gold chart tends to form a particular shape, and then tends to repeat that particular shape (accurate to a reasonable degree) on a larger scale. This is exactly what the definition of fractals suggests when it mentions the term “self-similarity.” Keep this in mind, as this is part of the reason why I think we did not exactly have the price action that I expected.
The difference between a smaller and a bigger fractal is often that different parts of the shapes are accentuated, as well as the fact that the bigger fractal has more complexity. This, I assume, would be the same when trees or broccoli are formed. The ultimate shape of the tree or broccoli determines where matter is added (more or less of) and what type of matter is formed at various phases as it is growing.
Look at the two fractals below, and see if you can understand what I am talking about.
(all charts generated on fxstreet.com)
What you see on the chart above are two fractals indicated by 1. They are similar, but different parts are accentuated, as indicated by an example.
This creates the possibility that all parts within a fractal might not have the same relative size to the similar part in the other similar fractal. This can make it tricky to judge relative sizes between two patterns, as well as when a pattern is fully completed relative to the first formed pattern (remember this as well).
It is important to understand that the overall fractal (the bigger picture) determines what shape is accentuated or where more complexity is required. Therefore, the big picture or overall fractal is the basis to understand how the various fractals fit together and where the chart is likely to go.
All this, and more, creates a continuous similarity in various parts of the chart. This can create some confusion, though, when analysing the chart or fractal, and the confusion can be overcome only by looking constantly for confirmations, as well as by observing the context within which the different fractals exist. Again, the big picture should never be forgotten.
Why am I telling you all this? Hopefully you will know by following the charts and explanations below. All this is done to give you a sense of where I think the gold price will go next.
On the chart above, I have indicated how I think the two fractals are similar. Above, I explained (to a degree) how the chart is able to create a continuous similarity, and this you will understand when you look at the next chart, which indicates another way the two patterns could be similar. This possibility is in part created by the fact that various parts of a given pattern are not the same in relative size when two patterns of similar charts are compared.
On the chart above, this phenomenon is illustrated. You will see, for example, that the distance between points 2 and 3 on the two patterns is out of sync when compared to the scope and distance of points 1 to 2. This comes back to the fact that different parts have been accentuated (see first chart).
The two blue rectangles bring me to the bulk of the reason why the price action was not as expected. If you refer to my previous gold updates, you will see that I indicated that the low (24 March 2010, just after point 8 of the second pattern) was similar to point 10 of the first pattern. I based my opinion on the visual similarity, as well as on the relative size of the patterns (i.e. the relative time it takes to complete the patterns). Now that the price action was not exactly as expected, as well as the fact that the price action since 24 March to date (pattern in second blue triangle) is almost an exact repeat of the pattern in the first blue triangle, I have come to the conclusion that the patterns are now similar, as indicated by the points in the chart. Therefore, I think that point 10, on the second pattern, is in the process of being formed. The visual similarity, between the two patterns is still very much intact, and this actually illustrates the concept that I call fluid, or continuous, similarity.
So, what do I expect going forward? I expect gold to rally very soon, in a spectacular fashion, as it did from the middle of August 2007 to the beginning of November 2007. It needs to find the bottom, which could already be in, at or near $1157 (or perhaps slightly lower). From a timing point of view, we are either there or thereabouts.
It is risky to make bold predictions, given that the market is so volatile, and given that my previous prediction was off. However, I aim to call things as I see them, as well as share the basis for my views. The objective of these updates and articles is to share my view; therefore, I will continue to express my expectation in no uncertain terms as far as possible.
The chart below is just to illustrate another way of viewing the similarities of the two patterns and thus illustrate the concept of fluid similarity. There are even more ways to illustrate the similarities between the two patterns, but not all of them are herein discussed.
It is important to note that both the above chart, as well as the chart below, indicate that gold should rise sharply—and soon.
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