Gold’s Super Bull Cycle Continues; Technical Evidence Points to a New Record High


 

Gold’s Super Bull Cycle Continues; Technical Evidence Points to a New Record High
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Dec 6 2010 11:07AM

Last Monday’s commentary looked for a continuation of the strong bullish uptrend. This uptrend began with a candlestick pattern we identified on Thursday, November 17th, issuing a buy signal. We are currently still long and are looking for a retest of the record high. We also mentioned that break above 1388 would signal a major breakout; we saw that breakout this last Friday. I currently believe that as this super bull cycle continues, we will see gold trade to new high. The following is how I reached this conclusion.

Chart 1 (above) is a daily gold candle chart. After testing and failing to take out 1388, a flag formation was identified. Last week we advised our subscribers that a breakout was imminent. Although a flag formation can break hard either down or up, we were anticipating the later.  Last Tuesday’s significant move truly illustrated the power of the flag formation. It not only broke above the flag but also to 1388 which is the 23 % Fibonacci retracement level. This was the critical target gold needed to trade above thereby ending the possibility of a head and shoulder pattern. Last Friday we saw continued follow through buying as gold traded just dollars shy of the record top.

Chart 2 (above) is a daily Heikin-Ashi gold chart. Heikin means average and Ashi means chart in Japanese. Although it might look similar to the traditional candlestick chart, the formula used to create the candle is quite different. Unlike the candle chart which uses only data from the current session, the Heikin chart compares the current session to the prior session. This determines how the body of the candle will be drawn. Visually the trend is much more apparent, and by applying some basic rules you can quickly determine whether a market is trending and the strength of that trend.

During an uptrend you will see a series of rising green bodies. However as the trend begins to get stronger the rising green candles will have longer bodies, and most importantly no lower wicks. If the trend is weakening you look for the bodies to get smaller, and for lower wicks to emerge. As the chart above clearly illustrates, we are currently observing rising long green bodies with no lower wicks, a clear indication of a strong trend.

Chart 3 (below) is daily candle chart with Elliot wave count and projections based upon Fibonacci extensions. I believe that we will see gold continue to trade higher. If it is able to successfully trade above 1424, the next upside target could take gold to 1469 dollars per ounce or as high as 1496.

I have firmly believed for some time that gold is in a super bull cycle.  In this cycle the rallies are steeper and more sustained and the corrections are much shallower.  New record prices will continue as this super bull runs its course. In an article written for “Technical Analysis of Stocks and Commodities” one year ago and published this February, I said that gold could be as high as 1500 dollars per ounce over the next two years and 2000 dollars an ounce within ten. That prediction now seems meek; it certainly did not when it was written.


December 6, 2010

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