Both Gold and Palladium Have More Upside Potential

Recent action in the precious metals have been interesting and long-term studies suggest that palladium might have further to go before retracing, and that the recent correction in gold might in fact be coming to a quick conclusion.

First off, we will look at gold as it traded from approximately $1167 in August of last year, to the most recent top at $1350 per ounce. We can subdivide this long upside move into three separate events. First is a major rally going from $1167 and concluding at $1245. Second is the correction from $1245 which concluded at $1197. Lastly, is the final part of the rally which began at $1197 and concluded at $1350.

The chart we are looking at is a daily candlestick chart of gold containing Fibonacci retracements for both rallies. The first rally resulted in gold gaining approximately $78 as it moved from $1167 to $1245. The correction which is I am labeling as one of the two corrective waves gave back $47 of the $78 gain. This is precisely a .618% Fibonacci retracement of the extension (rally). Market technicians believe that a .618% retracement is a deep and acceptable correction after a market has had a sustained upside move. Furthermore, Elliott wave theory states that the two corrections which are contained in a five-wave count rally will usually contain one deep and one shallow correction.

The .618% Fibonacci retracement seen from October 2018 until the end of November 2018 completed the deep retracement. What followed was a dynamic rally moving the market from $1196 to $1350 for a total upside move of $154.The correction  which began last week immediately after the market touched $1351 has now reached the .38% Fibonacci retracement level which resides at $1291. According to Elliott wave theory if a cycle contains a deep and shallow retracement, and the deep retracement was completed during the first correction, it is quite possible that this current selloff will conclude roughly at its current pricing at $1292.50.

Palladium Continues to Hold Steady

Considering the violent sell off evident in the precious metals today, palladium actually held up very well. The chart we are looking at is a monthly chart of palladium containing both a Fibonacci retracement, as well as a Fibonacci extension. We are using the extension to look at price action from January 2016 to February 2019. We have created a basic extension from the first leg of the rally which begins in January 2016 when palladium was trading at $453. That rally took pricing up to $1137, a $684 gain. In other words, palladium prices, more than doubled during that time period. The correction which followed took palladium from $1137 down to $811 a price decline of $326.

By creating an extension of the first wave and using the starting point at the conclusion of the following correction $1479. We can identify a one-to-one relationship between both rallies (wave one and wave three). Typically, in a strong market wave three will go much higher in relationship to wave one than 1 to 1. It can go as high as a 1.618% extension of the first wave.

If that is the case as you can see from the chart. Palladium pricing could rise to $1922 per ounce. A 1.23% extension would take palladium to $1655, and a 1.382% extension would take pricing to $1760.

In other words, based on Elliott wave theory we could see palladium pricing move substantially higher in the future.

Wishing you as always, good trading,

Gary Wagner