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Gold and Silver at Key Turning Points

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The metals have not likely seen their final bottom just yet.

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Last week in Silver and Gold Can Go Either Way, I said that I was unsure if we would be getting a big breakout in the metals for a larger 4th wave, per Elliott Wave analysis, or if we would have another drop before we can even begin that larger 4th wave. Well, today, I can report... that I am no further along in that determination. The market is truly at a crossroads at this time, and a breakout is a strong possibility. But, a small corrective/pullback consolidation will be needed to set up that breakout.

Since silver potentially has the clearer chart, I am going to key off that chart at this time in my broader metals discussion. Last week I continually noted how important the 20.50-20.60 region is for the Mini Silver Futures Contract as resistance.

In fact, as it has set up over the last two weeks, we can clearly see a b-wave flat in silver, as we have moved right into the resistance region which I have noted is so important. Furthermore, this move into this region can easily represent the entire c-wave of this b-wave flat, and seems to be just about concluded based upon the pattern and technicals we were left with at the end of the day on Friday, as we have just about completed five full waves up from the prior low.

In the more immediately bearish count, this would mean that the b-wave is just about concluded, and silver will be heading down to the 17 region to complete a c-wave of wave v of larger degree wave 3. This means we would need to see a strong impulsive move down begin quite immediately if this were the count playing out at this time.

Alternatively, if this is the larger degree 4th wave, then this is simply wave 1 of the yellow c-wave higher. This would mean that silver should pull back correctively early next week, and should not break below 19.65, the .618 retracement of this move up. In fact, when silver is in a bullish stance, it usually does not break down below the .500/.382 retracement region. And, when we note that the declining trend line from which we have nominally broken out is around the .618 retracement region as well, it tells me that the 19.65 region is really the lowest I want to see silver if we are setting up for much higher levels in an extended c-wave, which can target as high as the 23-25 region.

I will also apply similar analysis to the SPDR Gold Shares (NYSEARCA:GLD), and note that GLD has not broken through the larger mid-channel DTL that I have on my chart in the 127 region. And, in order to see a true breakout in GLD, we will need to see a strong move through the 130 level, which will potentially take it back up to the 135-139 region in its c-wave of a larger wave 4 as well.

For those who believe that the metals have actually bottomed for good, I would like to gently dissuade you of this notion. While it is, of course, possible that the low is in, the buying volume on this rise is truly indicative of 4th wave type of volume. So, I am not optimistic that the metals have seen their final bottom just yet, and still believe that there is at least one more low that will be seen this year before we can even consider a bottom as being solidly in place.

Also, as a reminder, I have mentioned many times in the past that I think the metals could be setting up to trade in lockstep with the equity markets. When you see this happening to a greater degree, please do take notice. This could have very serious ramifications to the larger deflationary/inflationary discussions we have had over the last several years. When all assets run together in the same direction, my expectation is that we will have a large rally in all, followed by a large collapse. But, before the large rally takes place, I am looking for a drop in both, with both potentially completing their respective corrections in the fall.

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.

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Position in SLV.
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