In recent months, we have been tracking three different scenarios for gold prices, and have been numbering them scenarios #1, #2, and #3. Our scenario #1 has fallen out of favor, so this post only describes scenarios #2 and #3. As always, when we're discussing multiple Elliott wave scenarios, the "what if's" can become a bit confusing and convoluted. Please ping us with questions if we can help clear anything up.

Scenario #2: gold needs a lower low

Of the surviving scenarios for gold, scenario #2 would have price seek a lower low before much longer. This scenario has price tracing out a five-wave move down from 2011 high, with the final wave "[v]" not yet formed. A good area for a downward reversal into the fifth wave would be near the channel boundary shown on the monthly chart below. This month, that is in the vicinity of 1,350.

If price seeks a new low, it is possible (although not certain) that it would be below the level of the 2008 high. For a variety of reasons, many traders will be watching that level, and there are likely to be stops placed just below that level by traders currently in long positions. Thus, if price slips a little bit below that level, it will surprise many traders, as markets often do.

A more detailed study of resistance levels and eventual lower price targets on a weekly timeframe can be found at our website.

Scenario #3: The low is in (for now), and gold will climb for several months

On the other hand, scenario #3 says that an intermediate low was seated several months ago, and price will probably continue to rise for several months as part of a lengthy sideways-upward correction that could last years.

If price rises much above the channel boundary shown on the previous charts, then it is quite possible that it may be reaching for an intermediate high "[a]" near Fibonacci target areas at 1,436 and 1,591.. That would be followed by a lengthy down-up pattern, but it probably would not produce new lows for a few years at least. (Unfortunately for long-term gold bulls, this scenario actually calls for substantially lower lows far out on the horizon.) As we indicated above, this is not our favored scenario, but it is a viable alternate. The monthly chart below summarizes scenario #3.