GOLD AND SILVER REVIEW
Friday, March 10th, 2006
Chris G. Waltzek
Gold & Silver Pullback
Gold and silver lost ground this week. Gold declined by over $25 to close near 539 while silver lost about $0.25 to close near $9.93. Traders largely credited the strong dollar for triggering the sell-off in precious metals. Regardless, the precious metals sector had been over-bought for months and a correction was over due. Gold stocks were hit hard - the XAU lost about 10 points closing near 125.
In the silver chart below, its clear that the primary trend remains intact. The market made a new high two weeks ago, that was not confirmed by the gold market. As long as silver remains above the trend line, the bias will be in favor of higher prices:
The gold chart below shows strength at the $535 area in the current trading range. Were watching to see how the consolidation develops:
The key to understanding precious metals direction has been the XAU lately. The XAU finally broke down from the bearish Head & Shoulders pattern that was first noted in this review a few weeks earlier. Gold stocks filled the large unfilled gap and remain beneath the H&S neckline. It should be interesting to see if the H&S pattern marks the top for the current leg higher or if the market can reverse:
All three of the major stock indexes have been consolidating for about 4 consecutive months. The Dow Jones has shown considerable strength relative to the other two markets by consolidating just above the 11,000 mark. Although the Dow did manage to gain slight ground, the nasdaq fell sharply this week and the S&P was off as well. The nasdaq and S&P have not confirmed the Dows break-out from four weeks ago, which may indicate a false positive.
*The Golden Guru Award*
Dr. Clive Roffey offered his gold price forecast this week:
"I have updated my long term Elliott analysis of the gold price. I was looking for the minor 7-8 correction prior to moving up to final wave 9 above the $625 area. This should lead to the larger 7-8 correction. The current gold price correction is a weak reaction as the second low has failed to move under the first low. This implies a strong forward move after this correction has ended.
It would not surprise me to see the final wave 9 split up into five sub-waves with moves to $585, then $625 and finally $685. But this remains to be seen. At this stage I will stick to me long term $625 target area."
Greg Silberman uses Fibbonachi targets to project silver and gold prices: "Using my Exponential Fib approach I'd like to indulge a bit - let's project the prior wave in the last Gold and Silver Bull Markets to arrive at targets for this current Bull Market:
Silver had a low of $1.50 in 1973 and a high of $40 in 1980. Projecting forwards, Silver has a price target of $675 (40+(40*((40-1.5)/1.5)*0.618)+1). YIKES BATMAN! That's a 6,600% increase from current prices.
Gold had a low of $35 (1971) and a high of $850 (1980). Projecting forward, Gold has a price target of $13,000 (850+(850*((850-35)/35)*0.618)+1). That's a 1,400% increase from current prices."
Another analyst is bullish on gold: "..subsequent essay will focus on the developing wave  in the bullish wave count (which we think will become the only valid count very soon). For now, we will just estimate how high that wave  would go if its amplitude were (in percentage terms) the same as or 1.618 times that of wave :
$ 418.35 x 1.7746 = $ 742
$ 418.35 x [1 + (0.7746 x 1.618)] = $ 942"
Sid Klein's gold forecast: "Open and public talk of the need for gold as a medium of currency (in the US and China, both!) is accelerating at a rate that exceeds even what I had initially forecast for this part of the cycle. Being coupled with investors' general disbelief of the break over $500, is entirely consistent with a scenario of price acceleration ahead, which can drive gold over $850 per ounce on a monthly closing basis, this year (silver's directionality is the same, though they take turns leading; presently, silver has been leading gold). Such a monthly close will precede a price acceleration above $1000 per ounce, in 2007."
The Golden Guru Award of The Week Award, goes to Greg Silberman for his bold $13,000 gold price projection. When we take the average of our intermediate-term pundit estimates for gold we find a single price target of, $739 a decrease of $101 from last weeks consensus of $838.
($625 + $742 + $850 ) / 2 = $739
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