Then July 30th and now charts as usual;

Back at the end of July we were looking for a wedge in Gold. It could be an expanding diagonal or a contracting diagonal. Our target was about $1050 or so (see blogs). Much depended on where you started the pattern. With the benefit of hindsight we have moved the starting point one notch to the right. This has the effect of sharpening the wedge and giving it a much better look. These are both contracting triangles. The expanding one is below;

The expanding pattern, in green, never materialized but at least the target price was spot on, so far at least. It has become a contracting wedge and there are at least 3 or 4 different ways you can view the pattern, but in the big picture we have to assume that the drop is done. In the minute picture I would not exclude a quick $40 or so up and down sequence just to make the 5th wave a clearer 3-wave affair than it is now. Additionally all three downlegs would become directionally equal and it would get us closer to year-end.

Gold should do well with expansive monetary policies, not if interest are about to increase. Given this weeks events it is therefore odd that gold should spike up today. A little wavering at the very last moment could cause some big swings. Ultimately the upleg should retrace this entire wedge or about 38% of the $900 drop. Both point to a little over $1400.

Gold is either finishing a 5th wave in a diagonal, in which case it can still go two steps lower, or it already hit the orthodox low a little while ago and is now completing an irregular b-wave (in pink). We prefer the diagonal which would allow for a week or two before we hit bottom.

You can get Chart of the Day at    <a href="http://www.chartoftheday.com/">Chart of the Day</a>

This is, of course, on a semi-log scale. These charts are fairly crisp, this one less so as i had to enlarge it. So here we see the 10+ year run from the lows at around 250 to the highs of 1923. In terms of inflation adjusted, or measured in purchasing power, the high is pretty well at the same level as it was in 1980/81. In other words gold essentially double topped. We have no idea whether or not the recent drop is just an intermission on the way to $5000 or more, or if this is the start of a huge correction. What we do know is that the largest correction during the ten years up was in 2008, from about $1000 to $700. This, regardless of what EW count one wishes to use, is a NORMAL retracement level. This is also at the average cash cost of $719, the level where miners actually stop producing. For an interesting take on this please go to    http://www.cmegroup.com/education/featured-reports/gold-storm-on-the-horizon.html   This is from the economist at the CME, Chicago Mercantile Exchange, sober and objective.

   Concerning EW, if we are approaching a bottom of sorts, after 5-waves down, we should get 3 waves up for a B and then another 5 waves down, so first to $1400/1500 and then down to $700. All of this regardless of where we are precisely.