Sunday, August 8, 2010


Now that we have a weekly swing low and a higher high I think the odds are heavily in favor of the intermediate cycle bottom being in place for gold. Just like all the calls for a market crash back in June, the calls for sub $1000 gold are probably going to be a bit premature. I really doubt we will ever see $1000 gold again during this bull market.

It was simply getting too late in the intermediate cycle for gold to have enough time to make it all the way back to $1000. Just like we had run out of time in June for the head & shoulders pattern in the stock market to have any realistic chance of completing.

This is one of the big drawbacks to relying solely on technical analysis. At bottoms the technicals will always look terrible. If one basis their trades solely on technicals they will forever be selling at bottoms and eventually they will destroy their portfolio.

History has show time and time again that trading based solely off lines on a chart just doesn't give one an edge in the market. I would say the many technicians over the last month have just added even more data to support that conclusion.

Now don't get me wrong, I'm not saying I don't use technical analysis, I do. I just don't use it exclusive of everything else. When cycles, sentiment and money flows are calling for a trend change then I ignore the charts and prepare to change directions. This is exactly how I spotted the stock market bottom and what I think will turn out to be the bottom of the gold correction.

Now I want to take a closer look at that correction, because despite the dire warnings of the gold bears, something pretty amazing happened during this correction.

Over a 6 week period gold pulled back a very modest 8.6%. That was considerably less than the 17% correction the stock market suffered and in fact one of the mildest intermediate declines of the entire secular bull market.

Even more amazing was the correction by mining stocks. I know a great many investors and traders became disgusted with miners and probably gave up on them during the last 6 weeks. But the reality is the 14% correction in miners is again one of the mildest intermediate pullbacks of the entire bull market.

I originally thought the HUI might hold above 450 for the remainder of the bull market. Admittedly I missed on that one. It dropped 20 points lower than that and spent a total of 12 days during this correction below 450. All in all though I wasn't too far off :)

What I really want to call attention to is the silver market. I think something big is brewing under the surface in silver.

Invariably silver follows gold and it usually magnifies any move, especially on the down side. So if gold drops 1% silver can be expected to shed 2-3%. At intermediate cycle bottoms silver will almost always fall apart. Often it will slice right through key technical levels. Without fail at intermediate cycle lows silver will look broken.

During the current intermediate bottom however silver did something that up to this point was just unheard of. As gold dropped into the intermediate low silver diverged positively from gold.

As gold was breaking down out of the bear flag on its way to $1155 silver did something its never done before. It ignored gold. As a matter of fact silver just continued to consolidate in the $17.50 to $18.50 range that it has been in for the last 4 months.

Folks something is going on in the silver market. Perhaps we have a supply problem brewing, who knows. What I do know is silver is now acting differently than it ever has before and I want to own a big chunk of silver and silver miners as we head into the final stages of this C-wave.


  1. Correction not over yet.

    See this other analysis: "...this rally will fail at a price above 1212 and possibly on the 12th of August at 1220".


  2. like I said the problem with analysis on a purely technical level is that you don't get an edge. You will sell bottoms and go broke. One has to account for sentiment and cycles if you are going to have any chance of making and more importantly keeping any money in the investing business.

    All these retracement lines are just meaningless gibberish if you don't factor in where gold is in it's intermediate cycle (very end of timing band) or sentiment (more bearish than even the February low.

    I've seen this nonsense countless times throughout this secular bull market and it was always completely worthless for timing tops or bottoms if gold wasn't with in a cyclical timing band or if sentiment wasn't extreme yet.

  3. If this article proves true, then that is a key observation! Silver is back down to $18.00 and we await the Fed to open his mouth and possibly hurt mkts. Dollar looks WAY I wonder if the current consolidation in Silver was really the final low however. Time will tell..maybe "THEY" run the stops on silver this wk , for the real low??

  4. wow..a comment dry spell!! apparently , we re in no mans land and no one really knows what to say here. mkt reaction was...blah. qe2 and who cares. gold should have been up by $20.00 on prospects of what the fed said. wait 4 tomorrow , maybe direction will become apparent.

  5. I tend to agree with Toby. I haven't seen a divergence like that recently, but I too think something is going on in the Silver market.
    There was a recent article regarding the manipulation of the silver markets by the big brokerage firms, I think it was Morgan, written by a whistleblower out of the UK that worked in the financial industry.
    Could this have something to do with it? Not sure by any means, but it does make you think doesn't it?
    Either way, I think silver looks real good at these levels.

  6. Look up the ongoing analysis by Ted Butler of the manipulation going on in the silver market on the COMEX. Apparently led by JPMorgan the CFTC is currently investigating this issue. VERY interesting stuff.

  7. Check out Butlers "When, Not If" article, apparently the CFTC will relent and establish position limits on silver, no word on the number of contracts, but Ted recommends 1500 - that would be the end of the JP manipulation and should give a solid boost to silver...remember too..Aug is typically a slow month for metals and silver seems to be supported at $18...I think $35 by 1 Jan is pretty realistic...and triple digits by the end of 2011


    in future, maybe the silver sell in one ounce only... if silver prices increases...

    lack governments and banks promotions... by the time they do, they would realize that it might be too late to profit... hooray for all others.. retail market people and corporate people are hoarding market in healthy way..

    gb5k forecast the silver to be up about few times at least in 2 and 1/2 year time frame... I checked and it is really on track...


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