by Financial market analysts and market technicians understand that fundamental events cause price changes in all asset classes, including stocks, commodities, goods and services.
Events affecting the price include, but are not limited to; geopolitical, political and economic, just to name a few. Market technicians use technical studies consisting of mathematical formulas to predict price changes. A common thread among technical traders is that mathematics can distill events into numbers.
Market technicians are well aware that fundamental analysis is the root cause of price fluctuations. But by distilling these events into numbers, it creates mathematical models that remove guesswork and noise from the process of analyzing and understanding the possible consequences of events. Engineering studies and the mathematics behind them can distill fundamental events into language that is much less ambiguous.
The chart above is a weekly candlestick chart for gold futures. We use two technical studies to extrapolate a forecasting model to predict future gold pricing. This study concludes that it is entirely possible that by the end of next year, gold will trade above its current record high of $2,088. The two studies used are the Elliott wave theory and the Fibonacci extension.
Elliott wave theory was developed by RN Elliott in the 1930s. He hypothesized that financial markets are generally thought to behave in a somewhat random manner, in fact trading repeatedly.
According to Investopedia, “Fibonacci extensions are a tool that traders can use to set targets or estimate how far price can go after a retracement.
Elliott wave theory creates eight wave counts to complete a cycle. The first five waves are labeled as the motive phase and consist of three impulse waves (waves one, three and five) moving in the primary trend direction. Between these waves there are two counter waves that move in the opposite direction to the trend marked wave two and four.
The Elliott wave figure on the chart above reveals that we have just completed a corrective fourth wave that ended at the recent $1621. We then use Fibonacci extensions by measuring the last gold rally in the first quarter to $1670, marked “A”, and conclude at $2076 this year’s high, which occurred in March. We then plan for a continuation of that rally starting from the recent $1621 low “C”. The extension we use in the study assumes that the last Fifth Wave will move gold pricing between +1.382% ($2181) and +1.618% ($2277).
The price forecast in this article is one of many models that use the same studies in different time periods as well as forecasts based on other technical studies. Although forecasting models based solely on technical studies have certain limitations, they can provide insights not available in traditional fundamental market analysis.
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As always I wish you good trading,
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a request to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and/or damage arising from the use of this publication.
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