Republished Gold and Silvers and Report

I posted this at Da Message Board back on January 28th. Well, here it is again...


[size=24][b]Da February Precious Metals Report

by da bear[/b][/size]




After a rough couple of weeks ending in semi-panic, gold and silver trickled up in the early morning hours before getting some huge bumps up as the trading sessions got under way.
As I type, gold is currently trading at $1,338.40 -- an increase of $23.50 an ounce. The dollar was up too, so there is something to the gold trade today, even if it is only short-covering and the fear trade thingie (along with oil based on the events in E-gypped). Jeffolie, who makes some great great calls, was calling for a gold low around $1,300. And based on the Thursday low of around $1,306 it looks like he called it. I was calling the low of $1,321 as the low but after a brief rally, gold fell hard yesterday. But, I still think gold runs up some more. I posted a couple of days ago that gold could have a short-term rally up to the $1,375 range. I still stand by this.

The area to watch now is the $1,300 area on the downside with upside resistance levels around the $1,400 mark.

jsmineset.com does some great gold stories. They also post some very good technical charts. So keep an eye on that.

For the day, silver at one point was up over $1 an ounce. Silver moves fast in either direction, historically speaking. Ok, wow, silver held all of it's days gains. Kitco.com is currently showing silver at $28.01 an ounce -- up $1.09 for the day. The sharp correction in silver took it down over 15% (or twice the percentage decline on gold). So a short-term rally (at some point) was to be expected.
As long as Thursday's low holds then silver is in a short-term up trend. An attack on $30 looks to be in the cards.

The precious metals rallied even as stocks took a beating. The dollar rallied too. So that is good for the precious metals' case -- at least short-term.

GDXJ -- the gold junior mining ETF -- had a nice day. That is probably the best broad indicator of heavy gold bug speculation. It offers a snapshot of what the top junior mining stocks are doing. As it is diversified it offers a better alternative to throwing dice at the entire junior mining universe.

Although I advocate owning gold in physical form, the 1/3 of the Axis of CRASHets that is short is made of paper (obviously) as is most of the cash portion (albeit physical paper rather than digital paper), and if you want to use a portion of the 1/3 gold to speculate in a paper gold equivalent (GLD, pure paper gold play, GDX the blue chip mining stock play, or GDXJ, the riskier, sexier gold play) then that is fine, as long as you have good risk management skills. Oh, a good way to counterbalance a risky choice of paper gold would be to devote a portion of the 1/3 CASH position to Fiat Metals.
This is something I am doing, and I think that you should too.

So for gold upside lies around $1,375ish to $1,400. A run-up past that, however, is possible, as I will discuss below.
In the other markets, the dollar rally is intact, but it has not yet been a barn-burner of a rally. Upside targets are still in the 97-105 range.
For stocks, all the US markets were down today. So the DJIA is back below 12,000. It appears that many traders (traitors?) are headed towards the exits. The maximum upside remaining for the DJIA is 200 or 300 points. The maximum downside would mean a repeat of the late 1930 to mid-1932 total washout. After this rally is over, or after this current downtrend is confirmed we will see the dreaded 3 of 3 downturn that Prechter has been on the watch for.

The year 1931 has been one that I have been looking at. That year was noted by a return to depression as the 1930 false euphoria came to an end. The banking collapse really picked up steam and stocks started down again. Then the whole damn disaster started to pick up steam in September 1931. September 2011 could be a repeat. September 2011 will also mark the 10 year anniversary of 9-11. Even as paper money came into circulation, stock prices sank. There was no hyperinflation. Not even in Germany. 1931 did feature a Treasury market blow up and Treasury yields spiked. So it is probably a good idea to get out of long-bonds, either corporate or gummit (i.e., also corporate, technically speaking). Cash was king. People also hoarded gold and food.

Well, Prechter does his usual socionomics thingie, and I guess I will try to do mine. As I have stated before, I am expecting an ultimate low around the summer of 2012 which I based on a summer 1932 parallel, and also since the next Batman movie is coming out then. In the summer of 2008 I posted the Simply Fabulous Letter on the old DR board calling for a brief up turn in stocks based on the fact that THEY wanted us to all go out and watch the new Batman movie. The DJIA was then around 10,600 and I called for a rally to the 11,800 or 12,000 area. Then more downside after that. As we all know, the DOW got up to around 11,800 then completely collapsed in the fall of 2008. As irony would have it, I called for a rally to around 11,700, but the DJIA rose to the 12,000 level as jeffolie had been calling for. But, the stock market may be taking another turn for the worst. Finally, last week I went to go see Tron Legacy in 3D. It was pretty good. Interesting in fact. Jeff Bridges did his whole "dude" thing which was fun. I have not seen the first one, but it was still pretty entertaining. The interesting part is that the first Tron movie came out in 1982 (MAJOR LOW). Tron Legacy starts out in 1989 (JAPAN top), then as the Jeff Bridges character disappears, the scene fast forwards to the present day as the son makes his way into the electronic universe. So if the top in stocks (globally) is in it will be like PEAK JAPAN but bigger, or, if you see the entire 1982 period until now as the TECH REVOLUTION then perhaps that is ending as well, with the internet being shut down in Egypt. Perhaps the internet goes back to the history books. Come to think of it, Egypt has pyramids which we cannot really build today. Perhaps the ancient Egyptians were more advanced back then. Hey, the ancient Egyptians or Greeks or whatever could have even had their own version of the internet. But perhaps it got destroyed. Guess we would have no way of knowing... Maybe we get regression in other forms of technology. It seems as if our technology is turning against us (i.e., Police State Dot Com) anyway.

[size=18][b]
Big Picture[/b]
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As I theorized in earlier posts and threads, gold and silver may be in GIANT B-wave sucker rallies. That is, the long-term (Wave IV) bear market that began in January 1980 may not be over yet.
While gold did make vastly new nominal highs, $1,430 recently as opposed to $850 way back when, in real terms gold has yet to make a new all-time high.
On the other hand, silver has retraced around 60% of its $50 all time high. And that is in nominal terms. In real terms it is lots lower than that.
Well, then do I have any proof?
Well, I think that if this really was instead, a sucker's rally then I would have to count the waves. In counter-trend moves, you get a 3 wave move. So an -a-b-c chart pattern.
Ok, let's examine.


[img]http://www.kitco.com/LFgif/au85-pres.gif[/img]

Here is a gold chart going back to the year 1985. You can see a sequence of lower highs and lower lows, culminating in an ultimate low of around $250 an ounce between 1999 and 2000.
Following that you have a great great rally in gold, basically without a huge correction up until March 2008 at around a gold price of $1,030. So that is a huge rise. Your investment went up 4 times. Not bad. Now, if this is a WAVE B of IV then this initial move up (2000 to 2008) is best counted as wave 'a'.

Here is something interesting. Yes, corrective moves occur in three waves. But, inside each a-b-c is usually a five wave sequence, or at least the upward moves have five waves, then the downward move has three waves. So wave 'a' should have a discernible five waves. Well, wave i took gold from $253 to around $300. Wave ii took gold back near the low. Then wave iii took gold all the way up to $700 or so in 2006. I think $714 as the high sounds right to me. Then you get a correction going into December 2006, which appears to be around 3 small moves. This correction then is wave iv of 'a'. Finally, the sharp burst to $1,030 into the Spring of 2008 culminates this move. That run has all the look and feel of a wave v move. That completes wave 'a' then.

In 2008, basically everything crashed. Precious metals included. But, the precious metals declined first. They topped in the spring, fell for the majority of the year, and then gold bottomed in November 2008. You can see that on the chart above. Also, the chart shows this correction as being a 3 wave move. I am counting this as 'b'.

Since the fall 2008 low gold has rallied fiercely. I think the actual gold price got down to around $690 an ounce. Then it hit $1,430 a few weeks ago. Gold made just over a double over that time frame.
It also feels like this wave 'c' of B move should comprise 5 waves, just as wave 'a' did. The first move up (as you can see somewhat on this chart) takes gold back to the $900-$1,000 range. This up leg is wave i. Gold consolidates somewhat in a wave ii. You then get another rally leg to $1,200 (wave iii) before a quick move back down to $1,100 (wave iv). Off that low gold ran up once more to $1,430 (wave v). Wave c's have characteristics of wave 3's but they are corrective moves.

If wave 'c' turns out to equal wave 'a' then a wave 'c' high should be around $1,470. So, possibly, gold could rise to $1,470. But that would mark the top of the giant WAVE B of IV sucker rally.




[img]http://www.kitco.com/LFgif/ag85-pres.gif[/img]


Now, let's do the same with silver. Silver made a series of lower highs and lower lows in the late eighties and into the Nineties. Silver appears to have made lows in 1992, 1994, and 1997. Then it made a move higher into 1998 (wave i of 'a') before falling again close to the $4 area. Finally, in 2002 the long sideways correction (wave ii) gave way to a new, sustained uptrend (wave iii) taking the price of silver from around $4 to new wave 'a' highs around $14 an ounce. Then came a correction into the $9-$11 range ending in the summer of 1997 (wave iv). Finally, silver made a final up leg to $21 an ounce in March 2008 (wave v of 'a'). The decline that followed was a three wave move 'b' that took silver down to around $8.50 an ounce. then wave 'c' started. The chart below shows the silver picture better.



[img]http://www.kitco.com/lfgif/ag2920lf_ma.gif[/img]


If the rally from the $17 level to the $31 area counts best as a wave iii then silver can run a bit higher. If not, then $31 or so marked the top, and the consolidation into the summer of 2010 was wave iv of 'c'.

Over this WAVE B if wave 'c' equals wave 'a' then wave 'c' should have topped out around $25.50 an ounce. But it didn't. Ok, well if wave 'c' turns out to equal 1.62 times the rally of wave 'a' then an expected top would be around $37 an ounce. If that price is hit, then a decline should follow. That decline would then be WAVE C of IV and should do a lot of technical damage. A decline back to the $7-$12 price range in silver would be possible.

If the length of wave 'c' in gold equals 1.62 times the rally of wave 'a' then a gold high just under $2,000 ($1,953ish) is possible. But, I would want to see a five wave pattern off the November 2008 low. After that rally, then gold will also decline in a wave C of IV taking gold possibly below $700 an ounce.

If gold and silver hold the recent lows, and continue to rally for much of the year, then we may see a TOP of 'c' between the fall of 2011 and the Spring of 2012. Then, the precious metals could drop VERY HARD into 2013/2014. One possibility (if the metals do make slightly new highs or something a little more) then a wave v of 'c' top to complete WAVE B, then a wave 'a' of C low in the summer of this year, followed by a wave 'b' of C HIGH either this fall or sometime next year... then the final 'c' of C low.


Side note: On both long-term gold charts that I posted above, the Elliott wave channel is showing a throw-over for both gold and silver. For gold, the upside of the channel is fairly steep and is currently around $1,300 an ounce. So gold just bounced off a critical level (the upper trend line). If gold were then to drop BELOW the upper-trend line, then the lower trend line is running around $950 an ounce, and besides the $1,150 and $1,050 areas the broad $900 to $950 area offers the next broad range of support.











da bear

2011 changes everything.