How Soon Will Gold And Silver Hit Their New Lows?

Includes: GLD, SLV
by: Avi Gilburt

I have seen a few interesting comments to my latest articles pointing out the need for more traditional "fundamental analysis" in my articles. So, rather than discussing market sentiment, I would imagine they would want me to discuss the metals' relationship to the dollar, QE infusions, the effect of the government shut down, or the buying or lack thereof in other countries, etc.

But, can you really derive any useful information from any of those factors that can assist you in the directional movements of the metals? I think not, especially since they have all led investors astray for the last two years.

First, many believe that the dollar and the metals have some form of inverse relationship. Well, has anyone actually looked at the two over the last month? Both have been in a downtrend. But, do any "fundamentalists" discuss this? I have not seen any. This fact just gets swept under the rug, since it does not fit within their overall perspective, and there are no reasonable answers to this phenomena. But, this is simply because markets are not "reasonable" entities, but emotional ones, and each market should be analyzed based upon its own merits. Relying on these so-called "correlations" will only leave you high and dry when they disappear just as quickly as they seemingly appeared. In fact, what if the metals are setting up to rally along with the dollar? Think about that one.

Next, everyone expected that QE infusions would simply send the metals skyrocketing. Well, I think we have all hopefully come to terms with the fallacy of this expectation.

Recently, everyone believed that the shutting down of the government would cause everyone to run to the metals, thereby causing them to skyrocket. Well, the actual shut down has begun, and we see no appreciable changes in the metals.

But, yet, everyone wants me to discuss these "non-factors!?" For some reason, everyone still believes these issues will unlock the "holy grail" to the directional cues in the metals. In truth, you have dozens of other authors who discuss these issues ad nauseum. They come to you with their long term biases and spin each of these scenarios into the perspective they currently hold.

But, sorry folks, this is simply not for me. I will not waste my time with such useless conjecture, as it has not helped anyone be able to determine the immediate direction of the metals. In fact, it has led to more investors being caught on the wrong side of the market more often than not over the last two years. In fact, if you look back upon the last two years, even if you knew the news before it came out, you still would have likely been wrong about the next trend for the metals. Think about that too.

So, if discussing the current headlines and their "effect" upon the metals is what you are looking for, then I suggest you read all those other authors. My "fundamental" focus is purely on public sentiment and its affect upon the metals. Because, in truth, I did not care whether there was QE3 or QE Infinity, as I have been looking down ever since the market did not provide the bullish set up that I was expecting last year. Yet, at the same time, we have been quite successful in tracking even the smaller movements within the metals' price movements during the downtrend. And, the only way that one can successfully do so is by tracking sentiment. In fact, I was suggesting shorts when QE3 and QE-Infinity were being placed into the market and everyone else thought I was crazy.

The question I asked in the headline of this article relates to the timing of the lows I expect in the metals. As I have said many times, my minimum target in silver is 17.76 and 112 in GLD. In truth, I really prefer the 98 region in the GLD, and it is entirely possible the silver can see the low teens. But, when can we expect to get there?

Based upon the positioning of the metals at this time, I have a hard time just yet answering this with a high degree of certainty, so I will tell you the two scenarios I am watching.

My ideal scenario would be for the metals to hit their targets at the end of this month. Yes, you heard me right. This means that I would need to see a break down in the metals beginning this coming week in order for us to have enough time to create the type of long term bottom in the target regions I have mentioned above.

However, due to various factors I am seeing in the charts, there exists the possibility that the metals can still rally to highs that are a bit higher than those made in August, which would delay the bottoming in the metals until early 2014. For an example of my immediate targeting in GLD see the attached chart below. It shows the very nice downtrend channel created since last year, which has its lower trend line crossing with my ideal target region at the end of this month.

But, I will reiterate that the metals will likely have to see a strong break down very soon if we are going to make our lows within the next month or so. Otherwise, this up/down meandering and, at times, whipsaw action, will likely continue for another month or two before the metals begin that final decline to new lows, and we can see highs above the August high into November. We will be watching it very carefully in our Trading Room this upcoming week for smaller degree cues to tell us which way this will be breaking. But, we are clearly at a tremendous point of inflection this upcoming week, and, until proven otherwise with a strong break over GLD133, my primary expectation has to be that we will be starting lower very soon, even if we see one more push higher early this coming week.

And, as always, I will maintain an open mind to the long term lows being in place for the metals, but I have no reason to believe this is the case at this time. But, I view any further drops as a huge opportunity to add to my long-term long positions which I still maintain.

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own intermediate term puts in GLD and SLV, along with SLV LEAPS, to which I will add on the expected drop.