The big question isnt whether or not gold and silver will correct their moves – the question is whether that correction is at hand. While it is too soon to say definitively – I am leaning towards saying yes – it is. I havent been posting much – mainly because there hasnt been much to say that I havent already said – over and over. Our target of $1350 and $23 have been hit and my next targets are $1050ish for gold and $19.50ish for silver. Here are the charts to demonstrate my thinking:
I seem to be in a very small minority saying that I believe this move for gold/silver has run its course… If you have been following my blog you know that I have been forcasting that gold would reach $1350ish and silver would reach $23ish this move which I have labeled wave 5 of 1 of MAJOR THREE. Todays action is sufficient for me to claim that my targets have been reached.
I have decreased paper holdings approx. 30%. If I am wrong, I will benefit from my physical positions and the remaining portfolio.
Stepping back and looking at things analytically – the temptation at times like these is to get caught up in the euphoria and to think that prices will rise day after day, week after week with little or no corrections – like the Nasdaq bubble or the 1980 blow off top. While I agree that there will come a time when this will in fact happen – I dont think that time is now.
It is of interest to me that there are so many articles talking about how much stronger silver is than gold – yet not a one of them indicates that this is what happens at the end of a move – i.e. silver outperforms gold.
I am not suggesting that the bull market is over. I am not suggesting that you sell everything and go buy Treasuries. I am simply stating that it might make sense to take a bit of profit off the table for the moment and wait for a nice sized correction to re-enter. Sell some covered calls if you have positions in miners that are significant enough to enable you to and they have options associated with them.
What I will say is that if you are currently thinking about buying right now – DONT. This would be a very, very bad time to enter. The risk/reward scenarios are heavily weighted against you.
Having said all that – DYODD and all that…
With the end of the month at hand, lets take a look at where we stand with gold and silver.
Of the 2, silver is on a bigger run than gold percentage wise (which is common at the end of cyclical waves as gold tends to lead until the end of a wave at which point silver plays catch up and eventually outperforms). I have been saying for months that the targets for gold are $1350ish and silver is $23ish for this wave (wave 5 of 1 of MAJOR THREE).
I urge you to be cautious as the euphoria surrounding the metals is approaching the point where the belief is that they will simply continue to run up and up and up. It doesnt work that way. They go down too – and we are near that inflection point.
My downside targets are $1050ish for gold and $19ish for silver once this wave completes. The corrective wave will be wave 2 of MAJOR THREE and I will be watching to see how long it takes. Martin Armstrong thinks it will extend all the way to June of 2011 – we will have to wait and see.
I am NOT suggesting that you sell any of your physical holdings – we are strictly talking paper based PM oriented investments/trading vehicles – mining stocks, ETFs, etc…
In contrast to the daily chart, the technicals are NOT oversold on this chart and have plenty of room to run on the upside. We could easily gain $2-3 on this setup – easily. With an overshoot, it could even go a few dollars higher than my target on a spike.
Compare the MACD from the last time we hit $20.50 to this time. Notice that we are not even close to being as extended as we were last time – that is bullish.
The fundamentals for silver are very, very favorable to higher prices. The commercial short position is of gargantuan size – a position which the CFTC has been examining and if you take Bart Chilton at his word – they will get back down to a reasonable size that is consistent with other markets; we are generally consuming more silver than is being produced on a yearly basis (we have been using up above ground supplies over the past 50 years), there are no central bank holdings of silver as there are with gold, industrial usage of silver continues to rise as more and more applications are discovered, the US Geological Society has published an estimate that silver will be the first element ‘commercially extinct’ by around 2020 – and the list goes on.
Subscribers to the charting service www.bullion-master.com/services are kept informed of these and many other factors that influence the price of gold and silver.
I have uploaded a PDF report published by Goldman Sachs with some charting as they look ahead at the 4th quarter.
Some interesting stuff – especially some currency crosses and the yields on the 10 and 30 yr (they might continue to go down) – which should be supportive of gold prices.
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