Today, I'm talking with EWI's Metals Specialty Service editor Mike Drakulich about the recent volatile price action in the world's most watched precious metal: gold.
Nico Isaac: Mike, let's go back a few days and review the analytical steps you took to stay, in a word, "downwind" from gold's near-term scent. In the early morning hours of Monday, October 24, gold's Elliott wave count stepped on a technical "twig" -- causing you to perk your ears in an entirely new direction.
At 7:56 AM, you released a Metals Specialty Service intraday update saying how recent events have caused you to "lose confidence in gold's downside" What were the clues that guided your analysis?
Mike Drakulich: Elliott wave patterns can develop in one of two ways: In five waves, which indicates an impulsive move that goes IN the direction of the larger trend -- OR, they can unfold in three waves, which indicates a corrective move that will ultimately be retraced. Gold's decline from Thursday's (Oct. 20) high did not unfold in five waves. So, when the subsequent rally retraced 62% of the decline, that was enough for me to start looking higher.
Nico: On October 25, gold soared over 3% in its biggest one-day rally in years. That day, at 2:36 PM, your Metals Specialty Service intraday gold update presented a newly updated chart of the metal where you labeled price action since late September, in Elliott wave terms, as a double zigzag rally. For Elliott wave newbies, what is a double zigzag?
Mike: Two zigzags put together. Two simple 3-wave moves labeled "a-b-c" linked by a 3-wave move labeled "x" - basically, just an extended corrective pattern.
Nico: So, gold's been correcting higher since late September?Are there any rules or guidelines of double zigzags that hint at when and where the pattern may end?
Mike: One measure is equality between the two "a-b-c" zigzags. Another is Fibonacci relationship of the first zigzag to the second zigzag.
Nico: How about other technical tools?
Mike: Yes, I like to use RSI (Relative Strength Index), moving averages, Fibonacci price levels, and trendlines -- when and where applicable.
Nico: On October 26, your Metals Specialty Service intraday update called attention to another "huge question" in gold right now: "How important a top is in place at the September 2011 all-time high?" How do you answer it?
Mike: We need to see whether key support price levels I show in my Service hold. We also need to observe how gold's Elliott wave patterns are unfolding. So the answer may take a while. Right now, I'm trying to forecast more from the "inside out" -- meaning, I'm using the near-term patterns to try to determine how the larger patterns might resolve.