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Did the Federal Reserve Change the Game for Gold and Silver?

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Precious metals are in a very precarious position.

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First, I want to state, very clearly, that last week's support regions in both the Mini Silver Futures Contract and the SPDR Gold Shares (NYSEARCA:GLD) were not broken. I noted last week that if they were unable to break down strongly through the cited support regions, then it opened the door to a potential a-b-c structure in either the yellow count or even the larger gray count.

So, as the market was gyrating on Wednesday morning into its lows, I sent out the following note:

While it was a nice short trade down into this region in the metals, I am going to raise the caution flag right here and now. We have a clear count that can tell us that the metals are bottoming in this region today. The count is also supported by positive divergences on the 144-minute chart, and we are in the support zone we have been watching since last week. Therefore, I am going to be looking for some shorter-term long positions, and will maintain very tight stops on those longs.

By the way, I also noted that I was selling that short-term long position at the end of the day on Wednesday and pocketing those gains, which seems to have turned out quite well so far, based upon Friday's action.

The current decline is only 3 waves thus far. If we are able to see a 5-wave down structure off of Thursday's high, then we can begin to short the market more aggressively for our much lower targets. But until this time, it is still possible that we could see another push higher to complete a more complex yellow b-wave, or in the more bullish scenario, a bigger 4th wave with a much bigger c-wave up. The bigger 4th wave is my least favorite perspective at this time, but I am not able to discount it just yet.

For now, as long as silver stays below the 24.10-24.20 region and GLD stays below the 135-136 region, then all we have is a yellow b-wave, with a larger c-wave down to be expected. As you can see on this chart, that would mean that the rally last week was an a-wave, the drop on Friday was a b-wave, with the possibility of another rally for a c-wave up toward the 24 region targets. This scenario is my favored one at this time. But also note that it is possible that the b-wave topped with the high made last week. A break down below last week's low would have me label the b-wave top at last week's high.

However, if silver is able to break out over the 24.10-24.20 region, then it is likely heading to 26.50, with the potential to hit 28.15 if we see a strong move through 26.50, which would be a c-wave in a larger 4th wave. For GLD, the equivalent upside targets would be the 143 region followed by the 148.50 region.

So we still need to see more action early this week to have a better feel for whether the market is heading down to our lower targets right now, or if we have to go higher to set up the fall to those lower targets. And as always, I will remain open-minded to the possibility that the bottom is in for the metals, but it will take a strong move through the above cited high resistance points to even get me to consider that possibility at this time. I view that possibility as the least likely at this point in time.

My primary perspective is still that lower lows will yet be seen, with the 17.75 level in silver and the 112 level in GLD as my minimum targets, and with the potential for GLD to approach the 100 region, which could very well mean that silver will break down below the 16.30 region and signal that this is a larger degree wave 2 for silver. But with the convoluted corrective pattern we have been dealing with for two years now, we really have to take it one step at a time.

See charts illustrating wave counts on silver and gold here.

Editor's note: Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD, and VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

Read more:

Green Count Validated

Should we be a Bull or a Bear?

Yellow (2) Still Alive, but Just Barely
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