Sunday, August 10, 2008

Gold and Silver Update

Trend and Value has maintained a very skeptical outlook on precious metals since the middle of March. for background you may want to review the post entitled 'the Trend is yer Friend.' and then at the end of May I wrote 'that we've yet to see an indication of a bottom...' yeah, sure there was a lively suckers' rally this summer and I don't doubt that a few savvy players did well on that swing. an old saying goes something like 'the success of one is the failure of a hundred.'

despite the fact that this weblog has a lot of posts about a lot of different markets considered from medium- or even quite short-term perspectives, I view myself mainly as a big-picture metals forecaster. if I can anticipate the major highs and, perhaps even more importantly, the major lows in gold and silver then I feel like I've been successful in my capacity as an analyst. (the rest of what I write about is more or less filler for the site.) the last few years I've been fortunate enough to see most of the big trend changes coming. with some luck, and a lot of diligence and patience, I hope to keep this up as gold continues to tell its story.

the most important thing to understanding gold's price movements the last several months is to recognise that we have been in the midst of a Wave Two Correction within a primary Five Wave Bull Cycle which began in the first half of 2001. or if you prefer Dow Theory lingo we are in the corrective period between phase one and phase two of a three phase Primary Bull Market. those interested in my analysis of Wave One should flip through the presentation posted on this site in May. click here to go to that post. those of you that have read the classic texts on Elliot Wave Theory may recall that Wave Two Corrections often exhibit an irregular pattern. for example, 'flats' or 3-3-5 zig-zags are typical wave two patterns.

now that I just spent three paragraphs on an introduction, the reader probably expects some rigorous analysis and a definitive forecast. sorry, but for all that hype I ain't got much to pronounce today. last week, silver violated its previous low of 16ish hitting the 65 week moving average on Friday. but gold held its low by a few bucks and remains a good bit above its 65 week ma. the past several years gold has been very good at holding double bottoms and even triple bottoms. it's entirely possible that it may show similar valor this time. but...I don't view it as especially probable. the macro-economic headwinds that have started to form this summer may prove difficult for even gold to tack through unscathed.

so to sum up, my view is that the metals correction probably hasn't been completed quite yet. but physical silver buyers can place an order at these prices with a fair amount of confidence. don't go overboard, buy maybe 20% of what you plan to accumulate over the next six months or whatever. I personally went long silver with a smallish position Friday afternoon. when I'm convinced it's bottomed out I'll start adding more.

(if you are interested in buying gold or silver but don't have a broker you trust, I might suggest talking to my old friend Lou Lindstrom at Investment Rarities Inc. call 800.328.1860 and ask for Lou.)