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fib_1618

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Time to start a new thread on this subject.

The previous thread can be found at http://tinyurl.com/3jkphh

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Up until the end of August, all seemed well and good with the ongoing preferred count consideration being that the price top we saw in March was that of Intermediate Wave (3) of Primary Wave {5}. After all, everything was working out famously since the summer of 2005, so why change now? However, a couple of guidelines of Elliott were broken during what should had been a 4th wave correctional process that called this idea into question, so let's take a look at what has happened since.

The first problem was that the price pattern was able to penetrate the 4th wave of one lesser degree to the downside at the early part of September, with the back breaking problem being that the price action retraced more than .618 percent of the entire advance from the January 2007 lows. Now, although something like this may have been due to the growing global financial problems, something like this was not at all consistent to this methodology after achieving what looked to be an extended third wave price pattern from these same January lows.

The other critical problem with this corrective count came with the internals that continued to come apart at the seams during this same time period - where one could allow the broader measure of the precious metals stocks to continue this kind of liquidation, but to have the cream of these same stocks, those components in the Gold/Silver Index (XAU), to see this unwinding process, was not at all consistent to any price pattern that still has Primary Wave [5} directly ahead of it. It is, in fact, because of this weakness in the XAU, that should had kept many buyers defensive during this final price decay period in the gold price pattern in the beginning of September.

And now we know why this happened after this last weeks financial problems coming to a head, and why the count consideration shown below has been adjusted as the best fit, at least for now.

For those who may wondering "why would gold be as weak as it is under such financial stress", one might consider that gold is not what many believe it to be in times of financial stress. For you see, the price of gold doesn't provide a "safe heaven" during times of when you're needing to generate cash reserves, or like what's been happening in the last couple weeks, if you can't sell one thing to offset losses in another arena, you will tend to find anything to sell just so you can, again, increase these same cash reserves (whether it's for margin calls, or just for the sake of self preservation). This would probably explain the main reason why the US Dollar has been rallying over the last couple of months (starting with the declining price of crude oil in August)...a shortage of currency (cash) will tend to do what a lack of any supply will do, increase in value.

It's also good to remember that the price of gold has a direct correlation to the amount of any excess liquidity between the four major asset classes (gold, commodities, debt, and equities), and in this area, gold is telling us that even though we have had a remarkable barrage of government interventions over the last several weeks, what's been made available during this time is still not enough to feed all of the tributaries of this same river of money to open gold's (savings) bypass of this same excess. In fact, the crash in equities tells us that we are still "deflating" when it comes to this same excess (at an accelerated rate), and bringing home this thought process, even gold itself will be vulnerable to this same kind of crash type event if the current ammunition continues to have little in the way of shoring up the levees on this same river of liquidity.

Suffice it to say, the current count reflects this idea...that gold is, more than likely, in a Primary degree correction at this time. Now whether this correction turns out to be a simple structure where we should quickly test the 2006 triangular price lows, or not, remains to be seen. Another idea I'm playing with would be a more complex correction where Primary Wave {A} is only the first part, Primary Wave {B} our expected triangle (outlined in gray - in progress), and then Primary Wave {C} testing these same 2006 lows (or even lower), might also be worth considering if given the current push and pull between this same global fire hose of liquidity and the selling for spendable cash scenario continues.

Whatever the future holds, until the internals of the precious metals stocks begin to show some sort of support in the near future, it would probably be most advantageous to continue to shy away from this market in general, unless, you're playing the metal itself. After all, precious metals stocks are stocks, and they are not at all immuned from any further weakness we might have going forward if the current "revaluation" process has not been completed.

In the fullness of time.

Fib






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