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Gold and Silver Still Likely to Sink Lower


While gold and silver haven't given us the sign that they've topped, it does seem as though the same timing for highs in the dollar may also be applicable for new lows in the metals.

Those of you who have been following my analysis for some time know that I do not rely upon correlations to trade or provide analysis. However, when patterns align across markets, I take notice.

If you have read my DXY analysis, you will know that I have been seeing a pattern developing in the dollar for the last month that suggested a strong reversal to the upside will be seen. Last week, I even noted that such a reversal can take the dollar to its topping target region in the May-June time frame.

So, while the metals have not clearly given us the sign that they have topped and are heading to new lows just yet, it does seem as though the same timing for highs in the USD may also be applicable for new lows in the metals.  Again, this is simply a hypothesis, and nothing I will absolutely trade upon, but the similarity of inverse patterns is quite suggestive of this potential.

This past week, we saw the SPDR Gold Shares (NYSEARCA:GLD) drop to just under our lower support region of 128 at the 1.00 extension up for the rally starting early this year, with a bottom on Thursday of 127.26.  So, do we have a confirmed top?  It is not yet confirmed, as there still exists the outside possibility that the market may yet attempt to reach the long time target we have had in the 136-140 region, for which we have still come up short.  However, it is not something I am willing to trade to the upside at this time, even for a short term trade, unless I see more market action early next week.

Normally, according to Elliott Wave analysis, the drop below the 1.00 extension from the 1.618 extension signals that the top has been struck approximately 80% of the time, based upon my experience.  Yet, without a solid 5 waves down, and 3 corrective waves back up, or a break of 126, I cannot be more certain that the market will still not attempt to head to another high.

In silver, we have a much more bearish potential setup, in a i-ii, (i) (ii) to the downside.  But, I have to say that even in this scenario, it still looks like wave (i) needs one more low before wave (ii) begins.  Yet, there is still the outside potential that the market may want to attack the 23-24 region in the Mini Silver Futures Contract before completing this 4th wave, especially since how low this rally has topped.  But, as long as it remains below 21.82, my primary expectation will be looking down.  If we are able to take out the 21.82 region, then I am looking for the 23-24 region in a c-wave in a larger corrective rally for silver.

I also want to note that if the high for this corrective rally in silver has already been struck and we are in the more bearish pattern I outlined just above, it greatly increases the potential that we will drop below the 16 region in silver, and target the 11-14 region.  We will have to see how extended the wave (iii) of iii becomes before we can identify the target with more specificity.  This is because silver does not usually provide us with standard extensions, which makes providing detailed projections much harder until we see how the heart of the move down reacts.

For now, due to the market not providing the strong signal I was expecting on a drop below 128 GLD, I am going to use the 126 and 131.50 levels as my guideposts.  If we see the market move strongly under 126, then I believe we are on our way to new lows in GLD.  If we see the market strongly move over 131.50 before it drops to 126, then my minimum target for a final move higher will be 134.75, with an ideal target of 136.75.  But, I do want to note that since we had an "underthrow" of the uptrend channel in this move up in 2014.  So, if the market does attempt to make a new high, there is a strong likelihood it will "overthrow" the top of the uptrend channel, which means we could see a spike over the 136.75 level, which will be summarily reversed in a strong manner.  Such action will signal the start of the next decline phase.

As long as we remain below the 129.50 level early in the week, then I am expecting a 5th wave down to complete 5 waves off the recent market highs.  If all we see is a several day to week long corrective rally off that low, then I will classify that rally as a wave ii, and prepare for a very strong wave (iii) of iii to the downside which will likely target the prior lows in the 115 region.

In summary, both metals have not completely invalidated the potential for another high just yet.  While it is not a high probability just yet that new highs will be seen, I remain open to the possibility if the metals can exceed the levels cited above.  But, make no mistake about it, I am still expecting each metal to make a lower low.  And, based upon the patterns I am seeing in the dollar and the metals, it is quite possible the dollar can see a strong rally into the May/June time frame, whereas the metals may see their final lows in that same time frame.

As for my larger degree expectations, I still foresee the 90-100 region to be targeted for GLD's final lows, while silver will likely still see at least a 16-17 handle.  If we do break the 16 region in silver, and head down into the 11-14 region, then this would make me look at this 3-year pullback in silver as a larger degree wave 2, which means wave 3 should be upon in the not too distant future, with targets in excess of 100.   However, if this is going to be a 5th wave in silver rather than a 3rd wave, we may not exceed 100.  In GLD, my minimum target on the upside will be the 245 region, which corresponds to the next resistance region in the 200 year Elliott Wave and Fibonacci Pinball study I did three years ago, which also correctly identified the 2011 top in spot gold.

See chart illustrating wave counts on gold and silver here.

Editor's note: Avi Gilburt is author of, 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.

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