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C-Wave or D-Wave?

From the 2001 beginning of the great secular bull market in gold, price has followed a predictable ABCD wave pattern. 

This pattern has since played out five times. And on each occasion the C-wave has provided a spectacular performance. Gold’s C-waves of 2002, 2005 and 2007 yielded brisk gains of 18, 61 and 41%, respectively.
Fast forward to our current C-wave (April 2009 - present) and we find ourselves in either a C-wave that has surprisingly underperformed expectations (topping in early December with a modest 19% gain), or one that has yet to show its awesome might. 
The question now is whether gold is still consolidating within a C-wave advance or whether a D-wave has managed to take hold.

On one hand, this C-wave did not generate the kind of excessive speculation we normally see at a C-wave top.  The silver/gold ratio never spiked and miners never even got to normal valuations, much less expensive valuations, as would be expected at a C-wave top.

The massive year and a half consolidation prior to September 2009 only spawned a meager 190 point new high? That doesn't sound like a C-wave top to me.
Since the November ‘08 bottom gold has put in the most powerful A-wave advance, along with the weakest B-wave decline of the entire bull market so far - and all this C-wave could gain was 190 points above the old highs?  I find this difficult to believe.

Trillions and trillions of dollars have been printed and thrown at the markets and yet all gold could do in its most powerful wave is gain 19%?  Again, difficult to believe.

We have a broken trend line that strongly suggests the C-wave is active and about to explode.

We have technical and sentiment levels in severely oversold conditions. This is just what we need to power another leg up.
And, despite a very strong dollar, gold is still holding well above the lows. It’s showing incredible relative strength.
 
Everything seems to be saying the C-wave is still intact and positioned for another explosive move higher...except the miners.
 
The HUI should have broken through the 420 resistance like a hot knife through butter. It should be breaking the down trend line.


It hasn't done either. Instead, the miners immediately turned tail as soon as they became short term overbought and have now closed back below the 200 DMA.
 
The lines in the sand are drawn. If gold can break the pattern of lower lows and lower highs by moving above $1161 the odds are the C-wave is still intact with another explosive move ahead.  If however price moves back below the February low in the vicinity of $1144, we are almost positively caught in a D-wave decline.


Whichever way gold breaks out of the box should tell us where we stand.
For what it is worth, if this is a D-wave we should be getting close to its bottom.  I would expect a test of the 65 week moving average and a retest of the $1000 mark will probably be about it before the next A-wave gets underway.

It comes down to the $1161 and $1044 price levels.  A move above $1161 would signal that the C-wave is still in play and we can probably look for a violent rally to the  $1400/$1500 level in the next couple of months. If, however, gold breaks below $1044, the D-wave is most certainly upon us with a likely retest of the $1000 level before a final bottom.
 
For now we will wait and see which price level gets broken first and I suspect we will get our answer this week.
Gary Savage

Gary Savage is currently retired and lives in Las Vegas. He is the author of the Smart Money Tracker, a financial blog with special emphasis on the gold secular bull market.
 



Disclosure: Long various silver mining shares