Submitted by Planet Yelnick

I don't follow gold much, not being a goldbug and finding a lot of the gold commentary at the fringe of financial sensibility. And the ads for buying gold on talk radio are almost as annoying as the Technorati 'teeth' ads you see on a lot of low-traffic web/blog sites.







Sure, a return to a gold-back currency would right a lot of what is wrong with the economic ship of state, but it is not in the cards right now, despite a push by China and the BRIC nations for it, and the rumors of a November deadline looming for China to continue to buy Treasuries. (If I were Bernanke, I would call their bluff on that.)



But sometimes gold as a trade gets interesting, and we may be at such a moment. Yves sent me the attached chart with a few comments. His fundamental view is gold should drop due to deflation. If you doubt deflation is with us, check out the second chart in this recent post.



Yves' chart suggests a wave 3 UP is upon us, gold having run up a bit already today. Similarly, the Prechter view is a serious drop in gold as deflation picks up, but their wave count also suggest an UP wave right now. The STU on Monday showed a chart of an ABC correction in gold with an alt count of ending a triangle B wave, and now starting a sharp spike up in wave C. A break of $972 confirms that gold will run fast towards $1050-1100/oz. We got to $955 spot today, but over $978 in Dec gold futures. Neely has had his aggressive traders in gold, and is now lightening up a bit, but also expects the run to continue in a gold panic, a "feeding frenzy" as the goldbugs rush in to avoid missing the big move.



(Note: in markets, there is not fear and greed, only fear; greed is fear of falling behind. A buying panic is a moment of fear.)



Now, normally the USD and Gold are inversely related, and the USD has been in a bottoming process rather than a fall, with an upwards bias; yet gold is spiking. Question is where is it coming from? Sentiment for gold remains essentially neutral.



Let me speculate that it is coming out of Asia. The China Bubble has burst and the SSEE is down around 25% in a month, with apparently more to go (at least below 2000 if not down to 1000, where the parabolic rise began). The Chinese government has been buying gold for the past six months (at least), and I suspect the middle class in China is rushing in for a safe haven against the equities collapse and likely real estate crash to follow. The recent rise in Copper may also have the same roots, of China rolling its long-term Treasuries into shorter terms, and then stockpiling commodities, including gold.



Whatever the cause, the wave structure is predicting a gold buying panic that will drive gold over $1000. Watch and see if it is correctly gauging the psychology of a buying panic.