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By now I must be sounding truly confusing and my logic of gold prices jumping up and down sounding like an excerpt out of any of Harry Potter movie. I feel an in sight about the characteristics of gold price movements in past is mandatory. Unless we know as to how gold prices behaved in past, how can we analyze the future convincingly?

1967 to 1980 was the great bull market for gold. The price of the precious metal more than quadrupled between 1974 and 1980. The peak price of 1974 was US$ 197.50 and the pinnacle for 1980 was $850. The price had multiplied marginally more than Fibonacci ratio 4.236 in a time span of 6 years.

Bullion topped out in January 1980 and mining stocks topped out in September. Starting from 1966-67, the upward cycle ran a full length of (Fibonacci) 13 years. In the final month of rise, gold nearly doubled in a blow off, then retraced that gain in a crash two months later, kicking off the bear market.

In 1985, gold reached a low of $284.25 basis of London fix and $281.20 basis the nearby futures contract. This low satisfied Fibonacci 5 years after it took Fibonacci 13 year’s from1967 to reach the peak of 1980.

Above are yearly charts for gold from 1975 to 2007 (March 19, 2007) and also a ten- year chart since 1997.

I had furnished above monthly chart of gold from 1999, but to understand, in depth, characteristic of price movement since 1980, the yearly charts would be more useful.

Complex bear market that has unfolded in gold since attaining the top during 1980 poses a challenge for any one attempting to unfold the mystery. At no time since 1980, gold prices indicated possibility of commencement of bull market, yet from September 1999, it just ran up to $730 levels by May 2006.

In my opinion, the drop between 1980 and 1999 (low of $251.70) constitute a portion of the first of record breaking set of ABC waves. Why do I say so? Simple. Gold, after attaining $ 197.50 levels during 1974, had retraced to $103.05 during 1975-76. If we consider the high of 1974 as the peak of 3rd motive wave, it is imperative that the low of $103.05 was the end point for 4th wave wherefrom the price galloped up during 5th wave to $850 levels in 1980.

Retracement following completion of a five-wave cycle encompasses retracement, minimum up to 4th wave level. In most cases, it is seen that in Wave A alone this level of correction is achieved, with final C wave declining up to 2nd wave level or lower. Even if we do not get in to such complications of performing autopsy of what wave we could be in, if an upward cycle got completed in 1980, it is mandatory that there will be correction up to 4th wave level or near about during the correcting phase.

During 1999, we had seen gold correcting up to $251 levels that was $53.50 above the peak of 3rd wave. In other words, there is no way that bear phase could be over. The best interpretation of wave status has been that the first phase of bear market ended in June 1982 from where gold began an intra-bear market recovery pattern enabling price to recover up to $502.75 levels in 1987. From this level, gold took another Fibonacci 13 years to correct 50% by August 1999.

If we consider the price correction between 1980 and 1999 as one broad Wave X, the appreciation since 1999 (comprising of 5 sub waves), will constitute Wave Y with Wave Z remaining to follow. No doubt XYZ will constitute an ABC correction but whether it will be a zigzag or a flat or expanded flat, it is time that will determine the ultimate outcome.

If we shall have a zigzag, it is highly doubtful whether Gold will move above $ 730 levels again since that denotes 85% retracement (from $850). If it will be a flat $850 or near about should be the limit. In the event of an expanded flat, gold price can move up to $1050 (1.236 times $850) to $1375 (1.618 times $850). It is most common in cases of complex corrections, for the highs of motive waves being overtaken, hence even if gold will rise above $850 levels, it will not imply presence of bullish tendency.

The Wave Z will be deadly since that will make price of gold crash to a level between $ 197.50 and $103.05 or plunge lower.

26 years have already gone since 1980. With gold movement, time and time again, showing tendency of adhering to Fibonacci ratios, numbers etc, the downward cycle can enfold anything between 34 to 55 years to complete. In other words, it may be another 8 years from now or19 years.

For me 19 years time seem more likely as that coincides with Fibonacci Benner cycle which indicates 18 years of decline for most of the flourishing economies now.

9. HOW DOES MANIA SET IN?

Before I start going in to detail, let me furnish hereunder, statistics of GDP growth rate recorded word wide:

GDP STATISTICS WORLDWIDWE Country GDP GDP Real Growth Rate GDP per Capita Afghanistan 21.5 7.5 800 Albania 17.46 5.6 4,900 Algeria 212.3 6.1 6,600 Andorra 1.9 2 26,800 Angola 23.17 11.7 2,100 Anguilla 0.11 2.8 7,500

Antigua and Barbuda 0.75 3 11,000

Argentina 483.5 8.3 12,400 Armenia 13.65 9 4,600 Aruba 1.94 -1.5 28,000 Australia 611.7 3.5 30,700 Austria 255.9 1.9 31,300 Azerbaijan 30.01 9.8 3,800 Bahamas, The 5.3 3 17,700 Bahrain 13.01 5.6 19,200 Bangladesh 275.7 4.9 2,000 Barbados 4.57 2.3 16,400 Belarus 70.5 6.4 6,800 Belgium 316.2 2.6 30,600 Belize 1.78 3.5 6,500 Benin 8.34 5 1,200 Bermuda 2.33 2 36,000 Bhutan 2.9 5.3 1,400 Bolivia 22.33 3.7 2,600 Bosnia and Herzegovina 26.21 5 6,500 Botswana 15.05 3.5 9,200 Brazil 1,492 5.1 8,100

British Virgin Islands 2.5 1 38,500

Brunei 6.84 3.2 23,600

Bulgaria 61.63 5.3 8,200

Burkina Faso 15.74 4.8 1,200