August 3, 2012 Page 1
26 Wellington Street East, Suite 900, Toronto, Ontario, M5E 1S2phone (416) 604-0533 or (toll free) 1-866-269-7773, fax (416) 604-0557
david@davidchapman.com dchapman@mgisecurities.com
www.davidchapman.com
Source: Alf Fields
Jim Sinclairwww.jsmineset.comcalls Alf Fields the best gold technician. Certainly Alf’s track record hasbeen very good since the gold bull market got under in 2001 near $250. Mr. Fields only comes out withthe occasional miss but his forecasts have proven to be quite accurate. That being the case Mr. Fields isworth paying attention to if you are gold bull.
TECHNICAL SCOOPCHART OF THE WEEK
Charts and commentary by David Chapman
August 3, 2012
August 3, 2012 Page 2
Mr. Fields believes that gold is in the early stages of a move that could ultimately take it to $4500. Mr.Fields believes what is coming is third of a third wave. The third of a third wave is usually the mostpowerful up move in an Elliot wave bull up move. If you believe that number sounds incredible Mr.Fields is calling for silver to go to $158. That level equates silver with the gold price of $4500 given it is agold/silver ratio of 28.4. Currently the gold/silver ratio is 58.4 but historically the gold/silver ratio has along term average of around 16. The current level of the gold/silver ratio is historically quite high.Mr. Fields most recent article/letter can be found in its entirety atwww.jsmineset.com. It is not theintention here to repeat Mr. Fields article but to provide some interpretation and context. Mr. Fields is anexpert in Elliot Wave theory. Many may use Elliot Wave or at least have some understanding of thetheory but there are very few in the field that could be considered experts. At best I am an amateur giventhat I have studied it over the years. But I do consider myself an expert but do find experts interpretationto be quite fascinating. Mr. Fields is IMO one of the best.Elliot Wave theory can have different interpretations. One error in the calculation of a wave and it canthrow the entire forecast out. Elliot Wave theory is quite complex and it can take years of study to master.Elliot Wave theory believes that a bull market unfold in waves of 5 (3 up and 2 down) and bear marketsin waves of 3 (two down and one up). Within those major waves there are numerous smaller waves thatalso unfold in waves of 5 or 3 depending on whether one is in a bull market or bear market. Even in a bearmarket a down wave can unfold in 5 waves but ultimately the entire bear market move should unfold inthree major waves.Mr. Fields believes the gold bull market got underway near $255 in April 2001. Major wave one toppedin March 2008 at around $1,011. The correction to $680 that bottomed in October 2008 was major wave2. Thus wave 3 got underway at that time. Major wave three was to unfold in five waves to the upside.The first wave of major wave three topped at $1,912 in September 2011. What the market has been goingthrough ever since is wave two of major wave three. The chart for the wave 2 correction is shown above.Mr. Fields believes that wave 2 unfolded in classic ABC fashion. The A wave bottomed at $1,523 inDecember 2011. Wave B topped in late February 2012 at $1,789. Finally wave C bottomed on May 16,2012 at $1,528 effectively making a double bottom with the wave A bottom of $1,523. Since then goldhas started a slow rise and has recently formed a triangular pattern that may have broken out a week ago.Gold is currently testing that breakout.What is interesting is open interest in the gold futures market has been falling for months. Most everyweek the weekend technical commentary (TC) notes the Commitment of Traders (COT) report. TC notesthe bullish ratio for the commercials. The commercials are major gold producers that are in the businessof gold such as Barrick Gold (ABX-TSX) and as well bullion banks such as the Bank of Nova Scotia(BNS-TSX). The normal interpretation of the bullish ratio for the commercial COT is that thecommercials will accumulate gold in advance of an up move or conversely reduce their long positions inadvance of a bear move. Recently the commercial COT has been rising.One thing that TC has not noted is open interest. Since the correction in gold got under way back inSeptember 2011 open interest for gold has been falling. Open interest is the sum of all of the long and
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short contracts outstanding. There are four general rules about the interpretation of open interest. They areas follows:1.
Rising prices with rising volume and rising open interest is a strong bull market.2.
Rising prices with falling volume and declining open interest is a weak up market.3.
Declining prices with rising volume and rising open interest is a strong bear market.4.
Declining prices with falling volume and falling open interest is a weak bear market.Since the high in September 2011 the market has seen declining prices with falling volume and fallingopen interest. This suggests that the mini bear seen over the past 11 months has been a bull marketcorrection only and that when it is completed one should see the number 1 rule above take hold. Theserules generally apply best to the futures markets but can also be applied to the stock market. The onlydifference is that the stock market does not have open interest but the volume interpretations do hold true.The volume/open interest interpretation fits with Fields Elliot Wave theory as well. TC has beenpredicting that once gold breaks out over $1,700 that objectives could be up to $2,100 and even $2,500. If that holds correct that would be in Fields interpretation wave 1 up of major wave three or as he calls it thethird of a third. What would then follow could be a shallow correction of 8 to 12% if the theory holdstrue. If the market is truly on its way to $4,500 the next move could prove to be quite exciting for goldbulls. Mr. Fields track record has been quite good over the past decade so he should be paid attention to.
copyright 2012 All Rights Reserved David Chapman
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