From the 2001 beginning of the great secular bull market in
gold, price has followed a predictable ABCD wave pattern.
This pattern has since played out five times. And on each
occasion the C-wave has provided a spectacular performance.
Goldís C-waves of 2002, 2005 and 2007 yielded brisk gains of 18,
61 and 41%, respectively.
Fast forward to our current C-wave (April 2009 - present) and we
find ourselves in either a C-wave that has surprisingly
underperformed expectations (topping in early December with a
modest 19% gain), or one that has yet to show its awesome might.
The question now is whether gold is still consolidating within a
C-wave advance or whether a D-wave has managed to take hold.
On one hand, this C-wave did not generate the kind of excessive
speculation we normally see at a C-wave top. The silver/gold
ratio never spiked and miners never even got to normal
valuations, much less expensive valuations, as would be expected
at a C-wave top.
The massive year and a half consolidation prior to September
2009 only spawned a meager 190 point new high? That doesn't
sound like a C-wave top to me.
Since the November Ď08 bottom gold has put in the most powerful
A-wave advance, along with the weakest B-wave decline of the
entire bull market so far - and all this C-wave could gain was
190 points above the old highs? I find this difficult to
Trillions and trillions of dollars have been printed and thrown
at the markets and yet all gold could do in its most powerful
wave is gain 19%? Again, difficult to believe.
We have a broken trend line that strongly suggests the C-wave is
active and about to explode.
We have technical and sentiment levels in severely oversold
conditions. This is just what we need to power another leg up.
And, despite a very strong dollar, gold is still holding well
above the lows. Itís showing incredible relative strength.
Everything seems to be saying the C-wave is still intact and
positioned for another explosive move higher...except the
The HUI should have broken through the 420 resistance like a hot
knife through butter. It should be breaking the down trend line.
It hasn't done either. Instead, the miners immediately turned
tail as soon as they became short term overbought and have now
closed back below the 200 DMA.
The lines in the sand are drawn. If gold can break the pattern
of lower lows and lower highs by moving above $1161 the odds are
the C-wave is still intact with another explosive move ahead. If
however price moves back below the February low in the vicinity
of $1144, we are almost positively caught in a D-wave decline.
Whichever way gold breaks out of the box should tell us where we
For what it is worth, if this is a D-wave we should be getting
close to its bottom. I would expect a test of the 65 week moving
average and a retest of the $1000 mark will probably be about it
before the next A-wave gets underway.
It comes down to the $1161 and $1044 price levels. A move above
$1161 would signal that the C-wave is still in play and we can
probably look for a violent rally to the $1400/$1500 level in
the next couple of months. If, however, gold breaks below $1044,
the D-wave is most certainly upon us with a likely retest of the
$1000 level before a final bottom.
For now we will wait and see which price level gets broken first
and I suspect we will get our answer this week.
The Smart Money Tracker
Gary Savage is currently retired and lives in Las Vegas. He
is the author of the Smart Money Tracker, a financial blog with
special emphasis on the gold secular bull market.