The price of gold surged to $1296 yesterday, which is its highest level so far in 2017. Mainstream media says political tensions following the United States’ withdrawal from the Paris Climate Accord and Qatar’s isolation in the Middle East are among the reasons investors are buying gold and other precious metals, considered to be safe-haven assets. Explanations like that are very easy to give in retrospect, but unfortunately they are also quite useless to everyone, who depends on the market’s vagaries in some way. Traders, for example, need to be prepared for what is likely going to happen next. They are not interested in finding out why has something happened in the past. So could gold’s rally be predicted and how?
Before the market opened on Monday, May 15th, we sent our clients an analysis, containing the following chart.
Over 20 days ago, while gold was trading below $1230, the analytical method we use – the Elliott Wave Principle – suggested the bulls were eager to return. The logic behind the positive outlook was hidden in the wave structure of the price action since the bottom at $1123, which looked like a leading diagonal in the position of wave (1/A), followed by a running flat correction in wave (2/B). The combination of these two patterns carried the same meaning as the common 5-3 wave cycle – that once the corrective wave (2/B) ended, the trend should resume in the direction of wave (1/A). And since the correction appeared to be complete at $1214, we thought it was a good stop-loss level for those, who would like to open long positions in gold in the middle of last month. The updated chart below shows how things went.
It did not take long for the bulls to start making their way to the north. Resistance after resistance, the yellow metal is now in the vicinity of the $1300 mark. News about Trump or Qatar sound like a good explanation for the price surge, but waiting for it would mean to miss out on almost all of it. Elliott Wave analysts, on the other hand, know that the market does not follow the news, it anticipates it.