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Gold is weak. What is the reason?

A month ago, on April 9th, we published an article about gold, in which we showed you two alternative counts. As you will notice, gold has been trading exactly according to the first one. When we made that forecast, the price of the yellow metal was 1310 dollars per ounce and rising, but we were expecting a reversal, because the wave structure of that rally was corrective, not impulsive. Soon after gold rose to 1330, only to crash back to 1268, thus confirming our expectations.

gold 9.5.14

The drop-off from 1330 to 1268 is in five waves, forming a nice diagonal. The question was “what type of diagonal is this?” We presumed that it is a leading diagonal and after the three-wave correction from 1268 to 1315 labeled B, another sell-off should have been expected. Pay attention to the corrective channel, in which wave B has developed, it is quite precise. But why did we think it was natural to expect more weakness from gold. Because there are three waves down from the top of 1392, marked A-B-C for (w). Then we have the connecting wave (x) to the upside. So, the normal further development would include another three waves down for (y), thus completing the whole double zig-zag pattern. All these facts limited our choices to a leading diagonal in wave A of (y), with wave B up and wave C down still to come. That is why we were not surprised, when gold declined from the top of wave B at 1315 to 1284 – we were waiting for this weakness. Now let’s examine the wave structure in the white square. We will be looking for an impulse there.

gold 30 9.5.14.

Here it is, on the 30-minute chart. Wave 2 is an expanding flat, while wave 4, if a triangle, may still be under construction, but we have the minimum requirements for an impulse. Now we are expecting a temporary upside retracement, but on the bigger picture everything is pointing down for gold. If this is the correct count, prices around 1250 should not be a surprise.

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