A Triangle pattern serves to let the "economics of the security" catch up with the prior large movement upwards in price. In essence, the crowd behavior pushed the price of gold a bit too high too fast, and this consolidation pattern lets the fundamentals catch up to price action. We had a parabolic move I discussed many weeks ago, and those always end badly to the downside. The $208 drop in three days is a typical reaction to a spike run like that. At the end of the day though, I had been forecasting what I call a "Wave 3" top and was looking for a multiweek or multimonth consolidation pattern before gold could move higher.
Let's examine what that triangle projection may look like. They take the form of 5 waves, or what we can call ABCDE in a pattern. The biggest drop is always the "A" wave, and that was 1910 to 1702 in 3 days or less. The next biggest drop is the "C" Wave, and that was 1920 to 1793, noting it was a Fibonacci 61.8% drop relative to the A wave. In other words, each successive wave down in the 5 wave triangle is smaller. This is due to the sentiment finally shifting and the trading patterns moving from people chasing the hot sector or stock or metal, to the long-term investors accumulating the dips.
If we end up consolidating in a "Triangle", then gold should end up looking something like the below pattern I drew, with a target of $2,350 per ounce many months out:
The other pattern we are watching for at TMTF is the ABC Correction pattern. We had the A wave down to 1702, which corrected 50% of the move from 1480-1910 in 3 days. Rarely do you get a major move down like that and not get some type of "re-test" of that low, but because the fundamentals for gold are strong and getting stronger, we are favoring the Triangle pattern still as most likely. With that said, there is a fat and juicy "Gap" sitting in the chart around 1660 on gold and dropping down there is what a lot of traders are watching. If that were to fulfill, then we will see an ABC correction ending around $1643, and then gold will begin another multimonth rally to new highs:
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