The world is waiting. The FED is expected to hike rates for the first time since 2006 this Wednesday in what is thought to be the biggest financial event this year. Well, we cannot predict what the FOMC will decide. Instead, we prefer looking at the charts, because they might just tell us how market participants are most likely to react to the announcement tomorrow, which is far more important than the announcement itself.
Gold(XAUUSD) is having another bad year in 2015 so far. In “Gold May Have Found The Bottom” we have shown you our long term outlook on the precious metal. Now it is time to go into the details.
According to the Elliott Wave Principle, trends move in five-wave sequences, called impulses. On the above-shown chart you can see that the rally from 1046 to 1089 could be counted as an impulse with an extended fifth wave. Typically, the three-wave correction, which follows every impulse is supposed to retrace the entire fifth wave extension, before the larger trend resumes. Having said that, let’s examine the post-impulsive price action. Starting from the top of 1089, gold appears to have drawn a nice A-B-C zig-zag correction with a triangle in wave B. The pattern erased all of wave 5’s gains by taking the price as low as 1058. This means that all rules and guidelines of a 5-3 wave cycle have been met. Furthermore, the 61.8% Fibonacci level could always be expected to provide support for the start of wave (3) to the north. That is the first scenario. But there is another one. Fortunately, it is bullish as well, so there is no controversy.
The second bullish possibility suggests an A-B-C correction with an ending diagonal in wave C of (2). If this assumption is correct, gold should make one last bottom near 1057, before the bulls return.
With all this analysis in mind, we may conclude that the stage is set for a significant advance in the price of gold. As long as the invalidation level of 1046 holds, targets above 1090 remain valid.