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Elliott Wave Ahead of Gold in Both Directions

Last week was hardly the best one gold bugs ever had. The yellow metal declined from $1319 to a low of $1288, before settling at $1297 for the weekend. So it made sense to expect more weakness after the open on Monday. Instead, the bulls returned to lift the price to $1313.57 by Tuesday, which the mainstream media explained with North Korea’s claims that the country considers U.S. President Trump’s tweets over the weekend to be a “declaration of war“.

If that was the case, the market must have gotten used to the exchange of threats between Trump and North Korea, because just two days later the price of gold fell to $1277.70. Gold is considered to be a safe-haven asset investors run to in times of political and economic uncertainty, so it is not at all surprising that its price initially rose. However, according to common sense, one could expect gold prices to continue to the north, because nothing is solved and tensions are still rising. Yet, two days later, gold is plunging.

Obviously, following the news and doing what everyone else thinks reasonable is not a very profitable trading strategy. Instead, we rely on the Elliott Wave Principle, which we applied to the chart below, sent to clients before the open on Monday, September 25th.(some marks have been removed for this article)

gold elliott wave analysis sep 25

This week’s issue of our premium analysis of gold included the above-shown hourly chart. It revealed that the structure of gold’s decline from $1357 to $1288 formed a five-wave impulse. To Elliott Wave analysts, this meant two things. First, gold’s trend has reversed and was pointing south now. And second, since the theory states that every impulse is followed by a three-wave correction in the other direction, this chart suggested “we could expect a short-term rally in wave (2/B) to lift the price up to the resistance of wave 4 before the downtrend resumes in wave (3/C).” That is how the Wave principle prevented us from joining the bears prematurely. The week is not even over yet, but let’s see how the situation has been developing so far on the updated chart below.

gold elliott wave analysis sep 28

Gold’s initial rally to $1314 fits perfectly into the position of the wave (2/B) we were anticipating. Then, right on schedule, the bears returned in wave (3/C). Navigating through the markets has never been easy, but it gets even more difficult when adding Kim Jong-un and Donald Trump’s unpredictable behavior to the equation. Fortunately, we have a powerful ally in the Elliott Wave principle, which focuses not on what somebody says or does or says will do, but on what message the market is sending through the charts, allowing for a much more objective trading decisions.

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