It has been more than a month since our last update on the gold market. In “Gold Bulls On The Losing Side Again?”, published on April 7th, we called a top at $1224, which was supposed to give a start to another sell-off. Indeed, the price of gold fell to $1170 on May 1st. However, we were expecting the decline to be much larger. The market did not think so. Yesterday, the yellow metal closed the week at $1225. Does this mean the bearish count has been invalidated? Should we turn bullish now? The chart below provides us with the answer.
The April top marked the end of a simple a)-b)-c) zig-zag correction. It could have been the end of gold’s recovery, but the market thought it was too soon. That is why it decided to extend the simple zig-zag into what seems to be a double one. So, the slow and choppy price action between $1224 and $1170 is wave “x”. It connects the first zig-zag with the second one. Or, in other words, wave “w” with wave “y”. Now, there are two reasons we believe wave “y” is in its final stages. First, gold prices are approaching the upper line of the corrective channel.
Second, this upper line roughly coincides with the 61.8% Fibonacci level, which often acts as a major reversal area. In conclusion, we have 5 waves down from $1307, followed by three waves up. According to the Elliott Wave Principle, the bears should take over the driving wheel soon. If this is the correct count, the yellow metal could lose another 100 dollars of its value. Or even more.