Price of Gold $425 by October 10?
July 19, 2003
Eric Hommelberg
Although it was not my intention at all to publish this article, I simply couldn’t resist sharing it with you. This article is based on two theories which are very popular in the Gold community right now. It’s the so called 8 week trading cycle in Gold and the ABCD pattern. I know there is a lot of discussion regarding the validity of these theories and as a non TA expert I can’t validate them either. The only thing I can do is try to determine their validity over the past two years.
That’s what I did and the results were so stunning that I like to share with them with you.
So let us begin with the 8 week trading cycle in Gold.
This theory says that we can expect a bottom in Gold every other 4month and the same applies for a top. (two month up, two month down)
Did Gold trade in a 8 week cycle for the past two years ?
Well, just take a look at the graph below and judge yourself, I counted 12 periods of 2 month which exactly matches the 8 week trading cycle. Not a single exception encountered ! Two month up, two month down, for two years now !
Pretty amazing isn’t it ?
So according to this 8 week trading cycle we can expect a bottom somewhere around the first week of August and a top somewhere around the first week of October.
OK, just a lucky shot ? Coincidence ? I really don’t know, but if so many traders believe in this cycle and trading accordingly, shouldn’t I as a Gold investor pay attention to it ?
I would like to show you another popular theory now which is the so called ABCD pattern.
This theory says that the uptrend in Gold is characterized by a so called ABCD pattern. It starts with steep rise (A), followed by a steep decline (B), followed by a modest rise (C) which won’t challenge the high of the A move, followed by a modest decline (D) which won’t challenge the low of the B move, then the cycle repeats itself. The A moves will mark new highs in an operating Bull Market.
How did this ABCD pattern behave during the past two years ?
Well, take a look at the graph below and judge yourself !
The ABCD pattern is clearly visible with the A moves marking new highs each time !
According to this ABCD pattern, we’re heading now into the next A move which will bring us to a new high !
Lucky shot ? Coincidence ? Again, I really don’t know, but as a Gold investor I think I should pay attention to this popular believe !
Combining the 8 week trading cycle and the ABCD pattern will give us a nice indication of the probabilities for the next high for Gold. (see graph below)
You’ll notice that :
Next A leg could start anytime soon
(please note that the $342 level seems to hold as the bottom for the latest D move. Strong support because of : touching 200MA and 61% Fibonacci retracement. The $342 level already tested three times in past three weeks)
Also the positive divergence of the MACD Histogram indicates that a low could be near)
This A leg could bring us to a new high within two month of approx: $425 (first week October ?) Not too bad news isn’t it ?
What does this all tell you to do ?
Well, first of all I’ve to stress that I’m not an investment advisor and that this article is just a result of playing with graphs and popular beliefs, but you should know what a POG of $400 can do for the Gold shares ! The XAU index can easily climb to over 100, the high quality Junior Gold Exploration Companies can go ballistic ! For those interested in what a POG of $400 can do to the Gold shares I recommend to read the “Year of the Junior Exploration Companies” essay which can be found at :
http://www.gold-eagle.com/editorials_02/hommelberg123102.html
So I would suggest that this is a perfect time to add to your Gold share positions.
Eric Hommelberg
Comments are welcome at : ehommelberg@planet.nl
http://www.lemetropolecafe.com/