Here is a simulated conversation between two gold investors, whom we'll call Hank and Marie, regarding the yellow metal’s recent lift-off to a three-month high.
Gold Trader Hank: I don’t know about you, but the current winning streak in gold has caught me like a deer in the headlights. I never saw it coming.
Gold Trader Marie: Me, too. In fact, I remember reading a slew of bearish-on-bullion news items this exact time just last week. In them, the mainstream experts listed several factors in gold’s fundamental backdrop that would continue to hold prices down, such as:
A Commerce Department report showing the biggest gain in US retail sales since February
A World Gold Council report revealing that global gold demand stood at a two-year low
A 66% decline in hedge funds’ net long positions versus this time a year ago.
Hank: Don’t forget the ace in the hole: the priced-in INACTION by the Federal Reserve. Here, this August 15 news item set the scene:
“Any accelerated gold rally is unlikely to sustain, and gains beyond 1630 seem to be a near impossibility unless QE is announced.” (Economic Times)
Marie: But “gains beyond 1630” is exactly what happened … even though the Fed did not announce a new bond-buying stimulus program on August 22. By early afternoon on August 23, gold prices had even gotten as high as $1670.
Hank: So, why do think gold ignored its fundamental script and left the downside in the dust?
Marie: Your guess is as good as mine.
Here’s a good reason, supplied by EWI's analyst for its Metals Specialty Service: Although gold prices did not follow their fundamental script, they had no problem acting out their Elliott wave script to the very letter.
EWI’s Metals Specialty Service’s Daily gold analysis on August 15 identified an Elliott wave contracting triangle in gold’s price chart. For newbies, contracting triangles are 5-wave, sideways-moving patterns, labeled A through E. Once complete, they are followed by a powerful thrust in the opposite direction.
Metals Specialty Service foresaw gold’s next move befitting this post-triangle thrust and wrote:
“This is likely where we will ‘begin’ to eliminate or at least shift odds on the 3 viable counts…. The bullish contracting triangle would see its wave ‘e’ bottom here and then a thrust.”
Soon after, Metals Specialty Service’s Intraday gold analysis on August 16 at 11:48 a.m. confirmed that the key price action had occurred:
“Bottom line is that with gold rallying above highlighted resistance, I favor a post triangle thrust to AT LEAST 1650.”
Now, Metals Specialty Service’s latest gold analysis reveals whether the precious metal has reclaimed the upside for good.