This article draws on excerpts from our spring 2014 Market Forecast, available for Kindle at Amazon.

The price of gold has consistently disappointed enthusiasts since the 2011 high. With each rally, we have seen a spate of articles saying that a low had been put in, but each rally stopped at a lower price than the previous one. We believe gold has not yet put in the real low of the correction since 2011, but there are at least two viable and different paths for it to do so. Both scenarios suggest that price will continue in an overall sideways-down corrective fashion in relation to the 2011 high, and that the correction will last for several more years. However, there certainly will be trades to catch in both directions during that time.

Gold primary scenario: a new low in 2014

In the big picture, after price makes a new low in 2014, it should trace some type of large B-wave corrective pattern in 2015 and possibly 2016, to be followed by a downward C-wave that should reach lower than the currently developing A-wave. The long-term chart below shows that path.

This is our primary scenario for gold, and it treats the decline from 2011 as a large, as-yet incomplete five-wave move. This scenario is attractive partly because it offers the cleanest Elliott wave count of the decline and also because it reflects a belief that gold prices probably will not fall very far through the floor set by the 2008 price high of 1,103.40. If price is presently near the end of a corrective wave [iv], as shown on the monthly chart below, then the final downward push for this large wave A should take the form of a five-wave impulsive or overlapping diagonal series.

In this scenario, price should test near the 2008 high -- a level which many traders will view as crucial support. Therefore, it might offer the greatest potential to surprise many traders if price were to poke through that floor by at least a little bit.

Viewing the weekly chart within the framework of the primary scenario, we see that price has behaved fairly well with respect to the channel formed by the Andrews fork. Price is now testing near the top of that channel, and it cannot go higher than wave [i] without invalidating this scenario. We believe price is likely to fall away from the top of the channel rather than venturing much higher. However, if price does go higher, then the next harmonic of the channel (shown with a dotted line) would represent important resistance.

The early part of 2014 also represents the start of a downward phase in the 64-week cycle. That would suggest that downward moves will get more traction for at least a few months, although it does not necessarily mean that gold will put in the real low at the ideal cyclical time in early October. Since a rebound is due, we believe it is more likely that gold will try to make a low closer to the half-cycle time, around June or July. The form of the downward wave [v] (diagonal or impulsive) will give clues about how long the decline is likely to persist.

At present, lower support targets for wave [v] of A are around 1141 and 1111, although we will be able to fine-tune those targets as the pattern develops in future months.

Any new high above the March high will likely negate the primary scenario and promote the secondary scenario to become the main one.

The primary count, described above, suggests price will reach a small washout low that would be a signal of capitulation (i.e., a sign that bullish traders have finally given up trying to pick a low). When that kind of capitulation low occurs, the contrarian's viewpoint is exactly what is needed before we see higher prices. The alternative, described below, has a somewhat different trader psychology associated with it, where bullish traders keep stepping in to accumulate on every swing low and are patient in looking for higher prices.

Gold alternate scenario: an intermediate low was made in 2013

The big-picture pattern for the alternate scenario is not very different from that of the main count. The key difference lies in how the rest of 2014 would play out. This scenario calls for choppy price action that finds it difficult either to punch lower or to break higher in coming months.

A closer examination of the alternate scenario for gold, as well as current analysis of 23 other markets, can be found at Trading On The Mark and in our most recent Amazon Kindle publication.