The Rebirth of Gold and Silver?

Back in April I wrote an article entitled “The Death of Gold” which suggested a longer term correction was on the cards for gold. I was partly led to that conclusion by the headline article (to the right) from The London Times dated 14^th March 2008.

Three days later, gold topped at $1032 and has dropped as much as $773 for a 25% correction.

Silver has not surprisingly fared worse with a drop as great as 45% due to its thinner and more volatile markets.

We exited most of our silver positions at $18 at the end of March and have not been back in since apart from the odd drip feeding of physical bullion.

The reason was purely down to Elliott Wave analysis and the following interpretation gleaned from the five year silver chart.

In other words, when wave 5 was over expect some big action to the downside because silver is correcting the entire bull market since 2003!

We have now got that and got it in spades for silver, but nevertheless, the current price levels do not surprise me in the slightest. Forget about conspiracies or massive short manipulation. If you believe these entities have power then sell your silver at the next rally and park your money in something that is safer. Elliott wave theory for months saw this coming, no need for any other explanation - period!

Where this correction could bottom is a matter of conjecture which I addressed to subscribers in April with five different approaches that centered on $11.90 give or take a couple of dollars. For example, Elliott wave theory offers the guideline that a correction to an impulse wave will tend to terminate around the price territory of the wave 4 that preceded it. Note that silver is currently right in the middle of that area.

Or we could employ Fibonacci ratios to the 2003-2008 wave and come up with $12.50ish for a 50% retracement or $11 for a 61.8% retracement. We had hoped silver would level out at $12.50 which is still a good point for the long term buy and hold investor to drip feed but alas the drop continues towards the 61.8% level.

As for gold, the 38.2% retracement of $255 to $1032 (i.e. $735) may yet hold but do not exclude a 50% retracement to $644 at an extreme.

The point being this, forget about 200 day moving averages and RSI values when this kind of event happens. You need something else to make sense of what is going on. Silver investors out there are chewing their fingers to the bone; they want something solid to put their feet on. The ultimate comfort is the confidence Elliott wave theory gives to see this coming and also point further ahead to events not only beyond this first bull leg but beyond to a glorious finale for silver, gold and any other asset that rallies itself against the loose foundation of fiat money.

Right now, the US Dollar index is pushing former support at 80. Plenty of traders and investors are selling gold and silver in anticipation that the mighty dollar gets back above 80 and back to its old ways. They may be right, but don’t bet on another dollar bull ruling the herd again.

Wave one of the 30 year silver bull is over and the wave two correction is now in force. Expect wave three to set a new all time record for silver prices.

Comments

[little_guy:]

Why not wait until end September for Central Banks to unload their gold quota ? , then November elections getting over and done with. 'Till then, Bush & Co. wants to save face: Americans to "feel good" and for this, a strong Dollar, cheap oil, holding equities (well, kind of) implying weak commodities, especially precious metals kept in check ?

2008 Sep 10 10:40 AM

[norespect:]

if I had a dime for every guy that did an overlay of the Elliott Wave theory on a chart and said this is it .. it reminds me of Abbott/Costello's -who's on first. gold' s been hammered by Paulson to sell US dollars

2008 Sep 10 08:13 PM

[TinyMIghty:]

Is the dollar strength coming from the U.S. investment abroad back to the U.S.? All the investment companies including hedge funds and banks need to sell ASSets abroad to bring in the money to the U.S. to save their companies? The money flow is shifting. The commodity rich countries are suffering with the dollar strength. However, according to the price pattern of the DXY, the resistance is 81 rather than 80. I believe that global deflation might happen after all the busts.

2008 Sep 11 01:51 AM

[deuxsous:]

twocents.blogs.com/web...

2008 Sep 11 08:37 AM

[The Silver ...:]

Thanks, I follow twocents for the K-wave aspects. No need to bash on Elliott Wave, this was my unwavered position for nearly two years when silver was still in the smaller wave 4 correction in 2007: one more wave (5) up then the big correction.

2008 Sep 11 10:41 AM

[deuxsous:]

I agree. On the long term charts silver looks very much like where it was for most of 1974 and 1975 after a similar 5 wave rise from 1967. I think silver's going much higher later on, probably next year unless world recession goes deeper than I think it will. In that case it may take two years of consolidation at these lower prices.

2008 Sep 11 11:05 AM

[traderstraffic:]

Short the medals. Long the paper. Paper is the ruler. The almighty dollar prevails. How much have you lost in the last four weeks. Get with the program, paper rules.

2008 Sep 11 01:11 PM

[Cesato:]

Tradestraff you are bloodily right. I believe this kind of analysis should be put in an appropriate time frame. Being Bullish or Bearish is more an attitude than a real trading strategy, if the bullish case was the case long term then it will take months of consolidation to work itself out of the range. I won't be surprised to see barely moving between 650 and 750 which can still be profitable but it just that a short/medium term strategy. If you are reading this article you probably don't have 100 million bucks to move the market yourself, so follow the trend, sell now booked profits on December and Gold Bullish in January 2009 risking the profit made in your short selling and then you can rest no matter what happens to the price of Gold.

2008 Sep 11 05:25 PM

[The Silver ...:]

Deuxsous,

Silver may be at a similar point to 1974-1975 but in K-wave terms, would you agree it is still somewhere in the equivalent of the 1950s?

2008 Sep 12 09:18 AM