As we mentioned in our first gold update just prior to the downturn in gold prices, the completion of a big move from July was imminent in terms of Elliott Wave analysis. Targets for the correction were suggested based on Fibonacci numbers and are in need of a little adjustment since the top came in at $541 instead of $538 and the minimum suggested correction at a Fibonacci retracement of 0.382 ($492) actually hit $493 due to the slightly higher top.

Since this correction is barely a week old, we are not likely to see much in a daily chart regarding price movement. Therefore, we look at the intraday movement of gold prices to seek clues as to the metal's near-term price movement. Thanks to the excellent chart work at www.netdania.com we can analyse such hourly movement since the 12 th of December.

We have annotated our Elliott Wave count and the result is pessimistic in the short-term for gold. From the 12 th to the 17 th a very good-looking impulse wave unfolded for gold. You can see the 1-2-3-4-5 count as well as the further 1-2-3-4-5 subdivisions of each of those five waves. And as noted earlier, this intricate impulse wave somehow organised itself to terminate on almost the edge of the fibonacci 0.382 retracement level. Don't ask me how Elliott waves and Fibonacci numbers organised this between themselves, but I suspect the final fifth wave into the 16 th was "short-circuited" when it reached that level. A technical Harmony of the Spheres if ever I saw one!

Now according to Elliot Wave theory, no correction takes the form of an impulse wave. That simply put means that this correction cannot be over, the impulse wave is merely part of a greater corrective pattern. We now believe that this multi-day correction is in its second wave or "B" wave. There is also a possibility that it could be a larger impulse wave of which we are in wave 2 (and so noted in the chart). But for now we assume the less severe case of it being the "B" wave of an A-B-C zigzag correction.

Using this standard "zigzag" corrective pattern, we tentatively suggest that the "C" wave to come will be downwards and about the same length as the "A" wave which dropped $47 between 12 th and 17 th December. When that "C" will begin depends on when our current "B" wave ends.

This "B" wave will retrace part of that $47 drop and do so in a matter of days. Looking at three possible retracements we have added in the chart, we note it has kissed the 0.382 retracement at about $510 and turned down (it actually hit $509!). But will this "B" wave go higher? If it doesn't, then the "C" wave may end at ($510 - $47 = $463). We would note that $463 is about the 0.618 retracement of the July to December impulse wave we examined in the last article. Will it end there? We think the probability is high, but we do not discount yet the 0.500 retracement bringing it down to $478.

As we said, it depends if the "B" wave has finished. If the "B" wave breaks above $510 it will go higher for somewhat longer. If it breaks below $493, it is finished and wave "C" down has begun in our opinion.

And when will the gold bull market resume again after this hiatus? If gold finally hits our target of $463 or $478, we will see a significant rally but at this point feel that that rally will not be the resumption of the gold bull market quite yet.

Either way, the gold bull is intact and all this price action is merely profit taking in a healthy and strong market.

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99.

To view a sample copy of the New Era Investor newsletter, please go to www.newerainvestor.com and click on the "View Sample Issue Here" link to the right. Comments are invited by emailing the author at newerainvestor@yahoo.co.uk