After some more research and some charts from an experienced trader named Art, it seems there is a credible case for a peak in April around $1350.

It seems likely we’ll get a very short-term bounce and then further declines in February. That will mark a reliable short-term bottom. So a prudent strategy is to wait for the lower low and see if things turn up from there.

The potential for a peak in April is supported by two things: a technical pattern called a Head and Shoulders and the work of a famous market commentator named Martin Armstrong.

Posted are two documents from Art. One shows that the all-important neckline of the Head and Shoulders pattern has not been violated. In fact, we have some more room to move down. How low? Well, if gold stays above the previous $1033 high, that’s very positive. Since gold is pretty volatile at times, though not as much at bottoms, it could overshoot and quickly get back above $1040 or so, for the pattern to remain valid.

The second document shows Art’s annotation of the long-term gold chart from Martin Armstrong. That chart is hard to read easily, but the latest price action is shown. The long-term trend channel is marked with double lines. Armstrong wrote a piece in November about gold that projected a likely path forward. In case you don’t know about Martin Armstrong, he is a controversial figure currently in Federal prison, but who has been incredibly prescient about markets.

Armstrong was one of the original proponents of cycle theory and his predictions have proven uncannily correct, time and time again. For the past few years he writes reports by hand and typewriter and they get posted on a website dedicated to him. It’s a long story about how he got in trouble, but basically the guy is an independent thinker who won’t abide by the idiocy he sees around him.

Armstrong wrote in November that if gold makes new highs after November, it would likely top in April. Well, there were new highs in December. The top of his long-term channel in April is roughly the same as the projected top of the H&S pattern, or $1350-ish. Afterward there would be a decline into October and then a strong move up into 2011.

He also said if there were no new highs after November, we might see a low in April and then a strong move up into October. That seems contrary to normal seasonal behavior, and anyway gold has shown strong resilience these past two weeks despite the re-appearance of risk aversion.

Finally, Art also bases his work on Alf Fields, who is quite famous now for predicting the strength of gold’s move back when it was below $200/oz. What interested me in Art’s analysis early on is that he has been in communication with Alf Fields, who stopped publishing reports about two years ago because he was concerned people were following his projections to trade gold.

Alf Field uses Elliott Wave theory but is distinguished as someone who can use the theory accurately. Most can’t. E Wave analysis is highly prone to as-you-go revision, and despite all the rules and patterns described in the theory, the tendency is for practitioners to re-fit market behavior as it happens. Not very useful, most of the time. Robert Prechter, credited for making the theory popular, has been a gold bear since the start of the bull run in 2002.

It says a lot about someone’s integrity that he didn’t want people putting themselves at risk based on his analysis. What Alf Field said in his last report is that trading gold is idiocy. Gold is about self-protection and that means getting in and hanging on, because it will be wild ride. Alf is the only person who accurately projected the price moves in gold several years in advance and further projects those moves into the final top of the current Major Wave 5. The swings have already been gut-wrenching, and they will get more extreme.

Anyway, Art has been communicating with Alf and the charts with the wave count show a kind of extension of Alf Field’s analysis, in the sense that current market behavior has been accounted for. In the big picture, Alf’s projections are still valid.

So, this is a lot of ammunition to support a view that we may see a peak in April. For various reasons, including Delta turning points, a low in February seems likely. Let’s see how it goes.

[1] Art’s Head and Shoulders charts

[2] Art’s annotation of Armstrong gold chart