I have never been a big fan of Elliot Wave Theory, but I do respect the self-reinforcing role that Technical Analysis plays in trading markets and I’m aware that Elliot Wave Theory has become an important tool that many traders use. So when I was looking at the 6 Month Spot Gold Chart today it did strike me that there could be a fairly clear pattern at play.
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If you aren’t aware of Elliot Wave Theory one of the basic principles is that there are Impulsive Waves and Corrective Waves. The Impulsive Waves are labelled 1, 2, 3, 4 and 5 and they make up the major trend movement of a market, while the Corrective Waves are labelled A, B and C and are the counter-trend moves where the market will revert to it’s mean or a supporting trend line.
The theory is that you can zoom in, or out on a market and see these waves on all sorts of different timescales but I like to look at the longer ones because I am a longer term investor. Having a look at the Gold Chart above they stand out to me quite clearly. The Impulse Wave is fairly distinctive while the Corrective Wave has a little bit of noise but still can be seen fairly clearly.
If I’ve labelled this right and the Elliot Wave Theory holds up on this 6 month Gold Chart then we might be at the start of a new Impulse Wave. That means – Number Go Up. Keep an eye on this chart because if Gold can crack about $2,060 USD in the next month then that would be a potential confirmation that the Corrective Wave has finished and we’re into the first leg of a new Impulse Wave.