DISSECTORGold is currently in the third leg of the long-term bull market that commenced in 2001. First target for this wave is at $1,867 and the second at $2,587.
The demand for gold typically witnesses a spike around Diwali in India. Many Indian consider it auspicious to buy the yellow metal around this festival as gold is the symbol of Lakshmi, the goddess of wealth. But the gold-buying fervour this year is dampened by the spiralling prices and the question that everyone is asking is — when will the correction in gold prices occur? Technical charts can provide the signposts that can help gauge the trajectory in gold prices.
History
Gold was ruling below $50 per ounce for most part prior to 1970. The steep rally in gold began in 1970 that finally ended in a frenzy in January 1980 triggered by geopolitical tensions caused by Iran and Russia and run-away inflation in most countries. Gold prices reached the peak of $873 per ounce then.
There was a resounding crash from those levels and the metal fell to $250 per ounce by 1985. It spent the next two decades moving between $250 and $450. A fresh bull market began from April 2001 low of $254 and the upper boundary of its long-term range was finally breached in 2005.
Long-term view
One leg of this bull market ended at $1,030 in March 2008 when most assets witnessed a melt-down following the sub-prime crisis. The correction that followed retraced 45 per cent of the up-move from 2001 low and ended at October 2008.
In other words, we are currently in the third leg of the long-term bull-market that commenced in 2001 in gold. If we consider the targets of this third wave on a logarithmic scale, we get the first target at $1,867 and the second target at $2,587. These are still conservative targets. A blow-out rally in gold has a much higher target above $3,000.
The 2008 peak of $1,030 will be the key long-term support for gold. The positive outlook for this metal and its ability to reach higher levels will be negated only if it closes strongly below the support band between $1,000 and $1,030.
Intermediate-term view
Deciphering the wave counts for the move from October 2008 is not as easy since the corrections from this trough are quite shallow and it is not yet clear which of the five waves is extending. The most obvious count is that the fifth wave of this five-wave move is currently unfolding from the July low of $1,157.
Immediate targets as per this count are $1,366 and $1,458. Once this five-wave move completes, there can be a correction to $1,150 or $1,000.
Correction that halts at the first target will result in the metal moving in the zone between $1,150 and $1,450 for few months before it can head higher. It is hard to envisage the metal moving below $1000 just yet.
Short-term outlook
Gold is in a short-term correction since the October 14 peak of $1,387. This correction is halting at the first support zone between $1,318 and $1,300. If the metal manages to hold above this zone in the next few weeks, there can be a year-end rally to $1,443, $1,552 or $1,695 before it reverses lower.
Supports below $1,300 are at $1,272 and then $1,245. Investors need to begin worrying only if the metal closes below $1,245.
Inflation adjusted chart
According to inflation adjusted chart of gold, current price of gold is $614 per ounce. This price is 23 per cent below the 1980 peak of $800 (inflation adjusted peak). In other words, gold prices have to rise to at least $1,700 to attain its inflation adjusted peak. — Lokeshwarri S.K.
No comments:
Post a Comment