Can gold sustain its rally from last week?
The SPDR Gold Shares
(NYSEARCA:GLD) took us right to the edge of our support region this past week, which clearly held, and provided us with a really nice rally. However, we now have to be concerned that this rally can take us back to the 145 region, which is where the purple a=c pattern points towards.
For such a rally to take hold, we will need to see a full five waves up off the lows in the metals, for which we currently seem to have only three. However, even that three has questions in silver, as the third wave only extended just beyond the 1.00 extension of waves 1 and 2. This makes it seem much more like a corrective rally than an impulsive rally.
So, the manner in which I am going to trade this setup will depend upon next week’s wave action. In the event we do see one more rally for a fifth wave in the metals, I will then be watching the decline to see if it is indeed corrective in nature, which would then set up a rally to much higher levels. So, when the fifth wave completes, I will likely set my stops on my shorts (bought at GLD 138) at the high of that fifth wave, if it does materialize. If we see a corrective decline after five waves up, I will likely add to my long positions, and allow myself to be taken out on my shorts in the event the larger rally does take hold.
Unfortunately, due to the lack of clarity of the larger pattern, it seems as though I am forced to trade the metals in this manner until we see a better signal for the next larger move. So, this will likely be a game time decision.
While we look for our next larger trade in the metals, I will say that I still do not believe that the low is in yet. Again, I will be open to the potential that it is if the market can prove it to me, but, for now, I will be looking for the next larger short trade to take us to new lows.
And, every now and then, I have to remind everyone who reads these articles that this decline since 2011 is part of a larger corrective decline. This means that the metals will likely see highs well above their prior highs. Those who accumulate physical metals must take advantage of these depressed prices when they consider the long-term implications of this degree of corrective decline. But, those who trade ETFs -- please remember that products like the iShares Silver Trust
(NYSEARCA:SLV) or GLD may not have full backing of physical assets to support the amount of “paper product” they issue. So, those who are intending on using metals for longer-term plays really must consider physical metals, as the ETFs are really only to be used as trading vehicles, in my humble opinion.
When looking at metals for your own purposes, please maintain a larger perspective on the fact that we are attempting to set up a significant bottoming pattern on the larger scale.
See charts illustrating wave counts on silver and gold here
Editor's note: Avi Gilburt is author of ElliottWaveTrader.net, a live trading room and member forum focusing on Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts and wave counts that is free of personal bias or predisposition. His Elliott Wave analysis appears frequently on several financial news sites.
Position in SLV LEAPS, GLD.