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Bull Fork vs Bear Fork Comparison For Fractal Gold

Jan. 29, 2011 2:17 PM ET
Bruce Pile profile picture
Bruce Pile's Blog
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From my blog post of January 15: 

The correction in gold this past week has gold fans trying to gauge its significance. About a month ago I posted on gold's big fractal fork in the road, and this correction is occurring right in the middle of the fork. So let's look at this fork. The two directions gold may take are a bearish path if we are in the 64 month bull market fractal (which ends this month, January 2011), and a bullish path if we are instead in a bigger scale of this fractal and are actually going into the mellow part of the 2nd parabola climb of this fractal. As I pointed out in my fractal fork post, the best way to discern which big fractal pattern we are in is the duration of the downtrend separator of the twin parabolas that make up the structure of this fractal. In gold's case, this downtrend is a little ambiguous as to whether it's the 1 year or less version that accompanies the 64 month fractal or the bigger 2 year or thereabout version that accompanies the larger scale overall pattern that seems to typically run around a 9 year length (plus or minus a year or so). To wit:

Here we see the inards of the larger scale bull-case pattern with the ultimately higher end price for gold with the 1 3/4 year separator. This would suggest a present pullback to about $1280 to a gently curving support area. This also is suggested by some technical analysis I ran across having nothing to do with fractals. Now for the bear fork possibility:

If you interpret the downtrend separator as this sharper, shorter version, it points to the 64 month as being the fractal we are in. The puzzlement with this is why haven't we seen the parabola ending manic spike in gold ? Well, if you subscribe to the popular train of thought that the big money bankers are to blame for suppressing the price of gold and silver to prevent panic over the dollar's problems, you would have to suspect that they were wary of what gold was starting to do late last year and perhaps did a total snuff-out of this spike. This is how the bankers think - Paul Volcker is on record as saying that one of the big mistakes made in the '70s was that they did not "manage" the price of gold better. This would leave us with just the collapse at the end of the 64 month fractal.

Which is the case should become apparent in a couple months or so. Just comparing the other examples of these various fractals, you see that in the shorter 64 month scale, the mid-course downtrend ends and the 2nd parabola starts usually right at around the 3 year mark. In the larger fractal, this usually occurs around 4-5 years. In our present gold bull, the 2nd parabola is starting at the 4 year mark. Even with the shorter downtrend, this puts it at over 3 1/2 years. And the 2nd parabolas tend to begin by overlapping the latter stages of the downtrend consolidations - this produces a disjointed curve in the shorter fractal version. These things, along with the bigger fundamental picture I discussed in the fractal fork post, seem to suggest that it's the bigger fractal that is in play.

But I am giving the smaller version possibility plenty of respect for now. Over the past week, I have done a serious re-weighting, taking a boatload of fat profits in gold to the sidelines for now. This would be prudent even if we are in the mellow early stages of a big 2nd parabola, where we will have typical overbought/oversold phases.

And it gives me an excuse to put more weighting into some good looking emerging sectors I've been lusting for - like agriculture. Some serious price action may be starting there as this food shortage article warns. It's a little melodramatic, but there have been a lot of trustworthy indicators pointing to some agri drama coming soon.

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