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Gold, Silver: Troublesome Signs in Charts Say It's Time to Get Cautious Again


Many have become uber-bullish on the metals, but that might be a bad idea.

Yes, you are hearing me right: I am now getting cautious on the upside in the metals.

I am more than willing to trade either direction on the metals. In fact, I have done so for the last several years with relatively good success. But, when I am in a corrective pattern, per Elliott Wave analysis, I become much more cautious when I see the metals not acting as they would in a bullish pattern. And, most specifically, what I am seeing in the SPDR Gold Shares (NYSEARCA:GLD) is extremely troublesome.

After GLD broke through my 123 upside trigger, it did extend beyond it. However, the pattern that it should have displayed is the heart of a 3rd wave up in a larger c-wave. That is not really what we have seen. Rather, this is looking more like a slow meander up in a b-wave. In fact, GLD should have looked like silver when it broke through its resistance, and clearly it has not.

However, even silver has its issues in my mind at this time. A consolidation of this size is not normally seen in the heart of a 3rd wave in silver. Rather, this is more like what we see in a 4th wave of a greater degree, before the upside pattern completes.

So, yes, these patterns have now put into question silver and GLD's ability to attain the ideal targets we initially had set out for them: 136-140GLD and 26 in the silver futures. In fact, I am strongly considering exiting much of my shorter-term long positions in the metals on the completion of the next wave higher. I will even entertain shorting at the top of the next move, but will retain some of my longs as a form of a hedge.

Remember, my bigger perspective provides that the metals have not yet seen their ultimate lows. In fact, I am still looking for 90-100 in GLD and at least a 17 handle in silver. And, yes, I know everyone else has become uber-bullish on the metals yet again, and expects that "the bottom" has been struck. But, as I said, I am not in that camp. Since even before this rally began, I said that this rally will only set up the bulls for one final skewering:

At the same time that CBNC is trashing metals, there is an ever increasing group of investors and analysts who are confident that the bottom for the metals is neigh upon us. I am seeing more and more articles coming out this past week that the lows for the metals are in, and 2014 is going to be the "Year of the Metal Bull." Personally, I think that is a lot of "bull." I see this as the "Year of the Whipsaw" or "The Year the Bulls Die."

Why do I say that? Well, one way or another, the metals are going to hit lower levels in 2014. Currently, I am still tracking the setups that can take us to the 136-140 region in GLD before we target the 100 region, which I have been warning about for weeks now. But, remember, even if we do get that break out towards the 136 region, it is just a setup for a bigger short trade to the 100 region. And, yes, that is why I think this will be the year the bulls die. This setup will likely put hope back into the metal bugs and bulls (and even the CNBC pundits, who will likely become bullish near the top) only to have them wiped out, and potentially capitulate in 2014. And, that will finally set us up for the real rally we all want to see.

So, for now, I will be looking for one more 5 wave move up in GLD to the 129-131.50 region and the 22.50-23 region in the Mini Silver Futures Contract at which time I will be lightening my shorter-term long positions. Also, I am going to suggest that traders maintain their stops in silver just below the 21.20 region and just below the 126 region in GLD (maybe even closer to the 125 region if you want to give it a little more room in GLD). But, once the market moves up, I would likely end up suggesting that you follow it up with stops. I have no assurance at this time that the market will see the higher initial targets we wanted to see based upon how this pattern has now developed. And that is why I have become more cautious.

As for the longer-term perspective, while I still do expect a lower low to be struck, I will not exit my LEAPS due to the fact that I could be wrong in my expectation of one more low. I would rather hold onto those LEAPS and simply add to them at another low, which allows me a more comfortable way to attempt an aggressive short for that one more low that I am expecting in the metals. However, if silver were able to break out over the 27 region before we see another low, I will be forced to reconsider my perspective. However, I am not expecting to have to entertain such considerations.

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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Position in SLV LEAPS and GLD.
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