Dollar Down, Metals Down - Which One Is Lying?

Includes: GLD, SLV
by: Avi Gilburt

I bet you thought I was actually going to answer the question posed in the title, which would then give you insight as to the direction of the metals. Well, if you have been reading me at all for the last two years that I have been writing for Seeking Alpha, you would have well known that such a question does not deserve the type of answer you expect. Rather, it is an issue of speculation that is followed by those who have been on the wrong side of this metal's trade for the last two years. My answer is that they are both telling the truth about their own charts and should only be read that way.

Many believe that fear of inflation is what moves the metals. And, inflation, in their belief, is what is going to tank the USD. But, there are many fears that can move the metals other than simply the fear of inflation. And, this can lead to seeing both the dollar and the metals rallying at the same time. While I am not definitively saying that this will happen in the near term, do not discount this potential.

So, take strong note that the metals have been dropping steadily over the last two years even though QE has been in effect to stimulate inflation. But, yet, all these speculators will point to is "manipulation" as the reason the metals have not rallied. As I have said over and over, they can continue to blame this invisible hand that they claim is manipulating the market, but the fact is simply that they are on the wrong side of the market and clearly have to come up with someone to blame for that.

As for the metals, we really need to focus on their pattern no matter what the dollar is doing or not doing. We have presented much evidence over the years that the metals will rally in the face of a dollar decline, and they will also rally in the face of a dollar rally. And, lately, the metals and the dollar have been dropping. Whether that "relationship" changes or not is of no consequence to me, as the metals will tell me all I need to know about the metals.

So, as some people see ghosts, I see market patterns. And, those patterns take the shape of Elliott Waves.

At, we have an exceptionally large group of talented Elliotticians, both among the staff and among the membership. And, within that elite group, I have seen multiple wave counts on the metals right now which all make sense and are all quite feasible. And, there is one thing they all have in common: no lasting low has yet been struck.

And, with no low being struck, the market can still drop lower and lower until we reach our next bigger target in the 98GLD region. However, we are now within a region above 115, mentioned last week, which can serve as support to spark an intermediate term rally within the next two weeks. And, this is starting to look more and more likely with each passing day. In fact, more and more technical indications are leading me to view this potential as much more likely at this time, as long as 115 holds support.

While it is surely possible that the next low which is struck is the final low in this 2+ year correction in the metals, I do not see that as the most likely scenario at this time, as long as GLD remains over 115. However, I would still be a buyer of longer term positions, including physical holdings, if another drop is seen over the next week or two.

So, in summary, and in Elliott Wave parlance, as long as GLD can stay below 121, I will be looking for one more drop to complete a b-wave low, and potentially set up a rally which will take us through the 123 region, on our way to a minimum target of 131.50, with the potential to head back to the 136-140 region. A break through the 123 before hitting another low would be my initial signal that the bottom of the b-wave is in, and a c-wave up has begun, especially if we complete a 5 wave 1st wave through that 123 region.

However, a strong break down through the 115 level, would have me looking to the 107-109 region, and ultimately targeting the 98 region sooner rather than later. But, this scenario is beginning to look less likely right now, but I will be watching the market very carefully on the next drop. Personally, I would much rather get the final flush down in the market completed already so this 2+ year torture for most metals investors can already come to an end. But, as I said earlier, until we can break 115 in very strong fashion, we may just be setting up another rally which will only delay the torture for metals bulls, and give them one more rally of false hope.

As for silver, primary support still is over the 18.30 level, with the 17.25-17.75 region just below there. A strong 5 wave move through the 20.50 region would be the initial signal that a c-wave up to 26 is in progress.

Disclosure: I am short GLD. 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 also have SLV LEAPS