There is theory which is also widely used to understand the behavior of this market is called the Elliot Wave Theory. The theory developed by an accountant Ralph Nelson Elliott (1871-1948) was based on the assumption that human beings together has a rhythmical behavior, the decisions in investing etc.; also are generally rhythmic.

Collective investor psychology (crowd psychology) moves from optimism to pessimism over and over to form a specific pattern as in the graph above. At the moment the market is bullish (trending up), the movement was driven by the rising wave of wave motive no 1, 3 and 5 in the picture. In this trip from time to time there is a correction as indicated by the corrective waves 2 and 4. A motive wave consists of 5 sub waves, and a corrective wave consists of 3 sub-waves.

Bearish market at the time (trending down), the opposite happened – according to Elliot wave will decrease symmetrically follow the opposite pattern of increase forming an isosceles triangle (the graph note the series of waves of 2-3-4-5-ABC).

For example the application of Elliott Wave Theory at current gold prices, I do not need to make your own because the Internet already is made of, among others Nadeem Walayat from www.walayatstreet.com or www.marketoracle.co.uk. the analysis I present besides graphics.

Based on the analysis of this Walayat, the current gold price is at a corrective wave 4 in which the price of gold could go down to the range of U.S. $ 1,050 / oz. for corrective wave consists of at least 5 sub-waves could have happened so many times leads to corrections to the range of numbers above. So when the moment I write this article the world gold price at U.S. $ 1,118.50 – do not be surprised if in a time not too long could have the gold price back down to around U.S. $ 1,050 / Oz.

However, because the main wave was in the corrective wave 4; very probably also in time this year the gold price will again move upwards following the wave of motive 5. The character of this motive wave crests always exceeded the previous peak of wave motive. So if the motive wave peaks at 3 U.S. $ 1,226.30 which occurred early in December last year, the top 5 according to the wave Walayat motive will reach U.S. $ 1,333 / Oz that could happen before the end of this year.

After reaching the top of the wave motive 5 – and according to Elliot Wave theory is the price of gold will turn into a bearish market has legs symmetrical with the increase. So if you follow this theory the Elliot gold prices will tend to fall next year (2011), this really will happen?.

Once again no one can predict the future accurately; Elliot Wave theory was probably right, but there are also flawed. Defects in the Elliot Wave theory is not I ever encountered in the review of the books that usually become the reference of the analyst.

These defects are defects of history, when the theory is introduced through the book The Wave Principle (1938) and also revisions to the complete Nature's Laws – The Secret of the Universe (1946) – the regime of money when gold was still used as a back-up. Elliot Wave Theory means a greater possibility of true if the money is used on the market has remained relatively purchasing power.

Conversely when the value of money continues to decline because the whole world of paper money no longer has fixed purchasing power, then the bearish legs A, B, C will not be easy to happen and if does happen will never be the same length with bullish legs 1 , 2 and 3. What is the meaning of it all at the price of gold this year or next year?. I still stick with my own theory, namely the short-term gold price could go down – but the long-term trend will be more likely to rise than fall. Not because of the more expensive real gold, but because the purchasing power of paper money used to buy that will continue to decline

Other articles you need to read;

• Does the Euro exchange rate down drastically affect on the fall in gold prices?
• The Easiest Way to Understand and Manage The Investment Risk
• Which one is your investment choice, investment in shares or gold for the best?
• Where are the trends in gold prices towards the end of 2011?
• The World gold price booming proves the weakness of the global financial system

This entry was posted on Wednesday, November 2nd, 2011 at 3:07 pm and is filed under Gold, Gold Dinar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.