On December 12, we noted for readers of SafeHaven that gold appeared to be winding its way through a corrective move, and we suggested two support levels that could produce a bounce - 1668.70 and 1628.10. We also suggested that it was a good time for those wanting to be long gold to step aside, unless they were prepared to trade short.

Last week, gold reached the lower target support level and began an attempt at a bounce. That support level is also near a channel line we have been watching. So what is next?

We see three possibilities.

First scenario: (Shown with green labels.) The lows in late May of last year completed a '(iv)' which was followed by wave 'i' of '(5)' up into the early October high and then down into a wave 'ii' of '(5)' which brought price to the present support level. Wave 'iii' up would follow into at least $1900.

Second scenario: (Shown with blue labels.) The high in October was a '(b)' wave, and we have just seen wave 'a' or 'w' of '(c)' of '(4)' complete. This suggests a minor 'b' wave up is due now. Targets for a 'b' wave are difficult to predict without seeing more price action. One rough estimate would be 50% of the last swing, which would be near $1714, but higher would be possible.

Third scenario: (Consistent with the blue labels.) A diagonal has formed, or is in the process of forming, coming down from the October high. At the completion of the diagonal, there would be a 'b' wave bounce, but ideally it would be halted before $1734 to form 'b' of '(c)' of '(4)'.

We lean toward the second scenario, because the advance from the May low looks more like an a-b-c move up rather than a clean impulse. However, a 'i' of a diagonal '(5)' up could make the first scenario work.

Scenario #3 is for all practical purposes similar to Scenario #2.

We should expect bounce for now, unless the trendline breaks.

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