Is Gold Topping?

For those that have been following us for some time, you may remember that, even before we bottomed, I have been looking for a 5-wave rally off the lows in the metals complex to take us to the 21-23 region in the GDX, the 122-125 region in the GLD and the 19-21 region in silver.  As of Friday, we have reached our minimum targets in the GDX and GLD, but silver has seriously lagged.

As an analyst, my preference is always for the market to provide clear indications within its wave structure.  And, during an impulsive structure, we do get those indications more often than not. In fact, our Fibonacci Pinball framework for Elliott Wave analysis provides us with very accurate guidance and indications within an impulsive structure a significant majority of the time. However, there are times when the market does not provide complete clarity, and that is what we are seeing at the highs in GDX and GLD. 

The main reason it seems a bit clouded within the micro structure is that the structures are overlapping, whereas standard impulsive structures do not overlap.  And, when we see overlapping structures within a larger impulsive structure, it suggests either a diagonal, or a corrective wave.

So, even though we have reached the minimal targets I set before we even bottomed for a first wave off the lows, the overlapping structure suggests that it may be completing as an ending diagonal in the GDX and GLD, but we may still see one more push higher towards the upper end of our wave I ideal target region. 

But, silver still has lagged significantly, and has not even struck my lowered target for the top of a wave I in the 17 region.   This leaves me open to the greater potential that silver may see a lower low, with greater probability than that which I attribute to GDX or GLD at this point in time.   But, until we see a break down below 14.65, silver can still attempt to rally to at least the 16.50 region to complete a 5 wave structure off the last lows.  A break down below 14.65 opens the door down to lower lows.

For now, as long as GDX remains over 19, and the GLD remains over 117, I can maintain the Friday pullback as a 4^th wave within an ending diagonal.

Getting back to the questions I am asked so often about whether I intend to short the market or if I intend to sell any of my long positions, allow me to reiterate what I have stated for quite some time now. 

First, I have no intentions of selling any of the positions I bought back at the end of 2015 and early 2016 in mining stocks.  These are very long term holds for me, as I have noted many times in our Trading Room at Elliottwavetrader.net, as well as my public speaking engagements.  But, as I also noted in our Trading Room, as of Friday, I am going to begin hedging my long term positions until a confirmed bottom is made.

Second, as I noted towards the end of last year, the time for aggressively shorting the metals has come and gone.  When I began shorting the metals in 2011, many thought me to be crazy.  But, what I view as “crazy” is attempting to squeak out high risk short trades in this complex at this point in time, when it is clear a very long term bottom is either in place or about to be in place.  Any drops we see going forth should be treated as buying opportunities and not shorting opportunities, at least in my opinion.

Even if we should see a lower low, I still have no desire to be aggressively shorting this complex, as the risks significantly outweigh the potential returns, from a long-term perspective.  While we have earned some fabulous returns shorting the market over the last four years, as I said before, the time for shorting has passed.  Anyone with any experience in trading metals knows that you don’t stick around for the final move, since the reversal is often exceptionally strong, and that is even assuming a lower low can be seen – which, in many of the miners, is much less likely at this point in time.  It was for this reason I suggested to those that followed me in 2011 to sell their long positions in gold once we moved through the $1,900 region, and not to wait for the last penny.  So, as of the end of last year, I sold all my short positions in this complex for the exact same reason, and noted so in our Trading Room.  Remember, pigs get fat, and hogs get slaughtered.

As of the past week, with the GLD and GDX making higher highs, and striking the minimum targets we wanted to see for a 5-wave structure off the lows, I believe that the probabilities have risen that the final lows have been struck and I would estimate that probability to be around 65% at this point in time.  And, if you remember, I still need to see a corrective pullback over the next month or two for a wave ii, followed by a rally back over the high of wave I to view the probability of a long term bottom being in place as exceeding 90%.

However, as for silver, I maintain a 40-50% approximate probability as to whether it has struck its final lows.  And, if there is any chart within this complex where I would even remotely consider a short trade, it would likely be in silver.  As long as we do not see higher than 16, there is a small window for such a short trade, since we are quite close to that level.  A move through the 16 region before breaking below 14.55 would increase the probabilities that silver has bottomed.

So, while we prepare for the potential topping in the GLD and GDX in their 5^th waves of wave I off the lows, pullbacks from this point forth should be looked upon as long term buying opportunities.  However, I am not going to suggest the use of leverage or aggressive options strategies until we have a confirmed bottom in place, which means we still need a wave ii pullback, followed by a rally over the top of wave i.  At that point, we can become much more aggressive in trading the significant upside yet to be seen.  Until such time, the probability still remains too high for the potential of a lower low for me to become very aggressive on the long side.  And, I prefer strong probabilities on my side when I trade aggressively.

See charts illustrating the wave counts on the GDX, GLD and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-YI-201603061169.html.