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Gold Bullion Likely to Pull Back then Rocket Higher
By David Banister
August 27, 2010

Back in June I forecasted a big top in gold, mostly due to the 5 wave structures up from the October 2008 lows to June highs, and the 5 waves up from February lows to June highs converging. We then dropped from 1243 at the time of the forecast to $1155, which was one of my potential "A wave down" rally pivots. I expected a counter-trend rally or "B" wave up to 1212-1225. So, all of that worked out pretty well, until we hit $1238. Now, $1238 is a 78% Fibonacci retracement of the drop from $1265 to $1155. Normally, a retracement in a weaker market or sector is capped at 61.8% or 50%.

The strength of that counter-trend move caused me to go back and review my patterns a few more times. Most of this is pure instinct and experience, but I think $1155 was the low of the correction. It also looks like that was an A B C correction to $1155, and with the strong rally ... it means we are likely beginning a new set of five waves up from $1155.

That brings us to my recent commentary for my paying subscribers that I was going to review the wave patterns and that we closed our Gold trading short position out several days ago with a small profit. It is a good thing we did because gold rallied hard from 1212 to 1243 since that time, catching some people off guard. At this time, gold is quite overbought and due for a small corrective pattern. It would seem logical that after a rally from $1155 to $1243 roughly, that we would pull back 38-50% of that move, so I'm looking for a pullback to around $1200 plus, and then a rally. We could see new highs in gold in the next few months, and $1300 is on the radar now.

In summary, I got the topping call right, the bottom pivot right, and the counter-rally pretty much right ... but I'm changing my views to BULLISH intermediately after a pullback, from BEARISH intermediately. Obviously the fundamentals for gold have never been stronger but I was expecting a deeper correction off the 21-month rally and instead, to me, it looks like with Quantitative Easing 2 upon us that gold buyers are really stepping up their gold purchases.

Below is an updated Elliott Wave-based chart showing clear corrective (3 wave) patterns from December 2009, and bullish (5 wave) pattern from February through the June 2010 highs. We just completed a 3 wave correction to $1155, and now this is probably a short-term peak wave 1 up, with a mini-wave 2 down to $1200 or so to follow. Once done with a pullback, we could see a run to $1280 or so, and later over $1300.