Those of you, who have walked through our Education section, may have seen an article, called “Expanding flat and how to avoid its traps”. The expanding flat is a very frequent type of corrective pattern and it is not very difficult to spot. It seems that gold prices are forming it right know.
It looks like we have to wait for wave 4 and 5 of C of (2)/(B) to be completed, before the larger downtrend could resume in wave (3)/(C). Note that there are some very interesting Fibonacci ratios between wave A, B and C of the expanding flat.
Wave A equals 62% of wave (1)/(A)
Wave B equals 138% of wave A
Wave C equals 162% of wave A at 1332$
If the price of gold reaches 1332, it would be a textbook example of an expanding flat correction. That is why we expect a reversal to the downside somewhere around this figure. The invalidation of this count would come, if gold prices take out the top of 1345.50, while the minimum target lie below 1280. The risk:reward ratio of at least 4:1 in this situation is very tempting.
However, there is another possibility. We want to stress, that the above-shown scenario is our primary one. Nevertheless, we see an alternative count, which deserves some attention and we have to point it out to you, so you can make your own decision.
The alternative scenario suggests, that the decline from 1345 to 1280 is actually an A-B-C zig-zag correction, where wave C is an expanding ending diagonal. This would mean, that instead of being the C wave of an expanding flat, the rally from 1280 is actually the resumption of the previous uptrend. The reason why we do not fancy this count has a lot to do with probabilities, since expanding flats occur a lot more often than expanding ending diagonals.
