Is Gold Close to Confirming a Breakout to All Time Highs

Is late summer or fall of 2012 going to be remembered for gold making a run to all time highs. Today David Banister gives us his take on where this gold market is headed in the near future......

Back in the fall of 2011 I was warning my subscribers and the public via articles to prepare for a large correction in the price of GOLD. The metal had experienced a primary wave 3 rally from $681 per ounce in the fall of 2008 to the upper $1800’s at the time of my warnings in the fall of 2011. A 34 Fibonacci month rally was sure to be followed by an 8-13 month consolidation period, or what I would term a Primary wave 4 correction pattern.

We have seen GOLD drop at low as the $1520’s during this expected 8-13 month window, but at this time it looks to me like a break over $1630 on a closing basis will put the nail in the wave 4 coffin. I expect GOLD to rally for about 8-13 months into at least June of 2013 and our longstanding target has been in the $2300 per ounce arena in US Dollar terms. Some pundits have much higher targets in the $3,500 per ounce or higher area but I am using my low end targets for reasonable accuracy.

This 5th wave up can be difficult to project because 5th waves in stock or metals markets can be what are called “Extension” waves. This means they can have a potentially much larger percentage movement relative to the prior waves 1 and 3 of the primary bull market since 2001. You can end up with a parabolic move at the end of wave 5, where those $3000 plus targets are possible. I expect the 5th wave to be about 61% of the amplitude of wave 3, which ran from 681 to 1923, or about $1242 per ounce. If we were to apply that math, we come up with $767 per ounce of rally off the wave 4 lows. $1520 plus $767 puts us at $2287 per ounce, or roughly $2300 an ounce low end target.

In summary, crowd behavior is crucial to the next coming movement in GOLD and it could be a sharp rally that catches many off guard, much like the downdraft last fall did the same to the Bulls. Be prepared to go long GOLD once over $1630 per ounce and buy dips along the way up to $2300 into the summer of 2013.

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How Long Can The SP 500, Precious Metals, & Bonds Rally?

In the fine print of most investment advertisements or in the softly spoken disclaimer at the end of a commercial, we generally read or hear the phrase “past results are not indicative of future performance”. While those exact words may not be written or uttered, something along those lines is found on almost any piece of investment literature or in investment product commercials.

In the 2nd half of 2009 all the way through 2010 a variety of asset classes performed quite well.

Investors who purchased stocks, gold or silver, and bonds anytime in 2009 were handsomely rewarded in 2010 if they held their positions. How long will these assets continue to perform well? How long can gold pump out double digit returns before suffering a bad year? How high can stocks climb when uncertainty seemingly surrounds the marketplace? Price action is never wrong, but history reminds us that a particular asset class does not outperform all other asset classes consistently over long periods of time. Trees do not grow to the sky.

Since 2009 stocks, precious metals, and bonds have all had tremendous performance records. Most economists point to actions by the Federal Reserve as the primary reason because these interventions lowered interest rates to extremely low levels which caused investors to take more risk for better returns. High levels of liquidity paired with low interest rates moved nearly every asset class higher, with stocks and precious metals earning outstanding year over year returns.

With 2011 just starting, will stocks, bonds, and precious metals continue rallying? When looking at probabilities and statistics the odds are not favorable that all 3 asset classes will remain outstanding investments. In fact, it is possible and arguably likely that at least one of the asset classes if not more than one will face headwinds in 2011 and beyond. While Tuesday was only the second day of 2011, precious metals are under significant pressure and the fundamental picture for bonds and stocks is uncertain.

Let me show you just how overbought this market is. Read > How Long Can The SP 500, Precious Metals, & Bonds Rally?


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