Eventually The Gold Price Will Bottom…BUT

January 20, 2015

gold price bottomTo all those that are thinking that the bull-market in metals is back, I will remind you of former US President Ronald Reagan’s famous words:  “Now there you go again.”

Time and again we have seen this same movie play out over the last 3 years.  We see a corrective move off a low, followed by a somewhat stronger spike higher, and everyone then becomes certain that the bottom is in.  Yet, we all know how this movie has ended each and every time for the last 3 years.

But, many of you are probably thinking that, eventually, this movie will have a different ending.  And, you are right.  Eventually it will.  But, I would much rather see a completed downside pattern, or at least an impulsive move off an ambiguous bottoming pattern, to even consider that I am wrong about the long-term bottom being in place. 

Remember, this is why I usually buy the bottom of a 3rd wave in a c-wave, since there are times when a 5th wave bottom is cloudy, or my count was simply off by a wave degree.  Again, I do not believe I am wrong in expecting lower lows before this multi-year correction completes, but I have been very transparent in noting that I went long in early November, and have no reason to go net short at this point in time.  At least not yet.

So, I want to take this opportunity to reiterate a very important point.  While I still view lower lows as being likely, that is not the same thing as having a desire to trade for those lower lows in an aggressive fashion.  Again, I have noted that, since early November, I have been net long silver and miners for the first time in over 3 years, and am looking for lower lows to add to my long term positions. And when the set up for those lower lows emerges in a clear fashion, I will short the market at that point in time.  But, as I have been trying to stress since November, I think it is time people should be taking a bigger picture approach to this market and looking to the long side, even though lower lows are still likely, at least based upon my analysis.

To gain some perspective, please take a look at the HUI chart that is tracked by Garrett Patten (lead analyst of World Markets and contributing analyst in our Stockwaves service at Elliottwavetrader.net), which is attached with this update.  While we still have lower to potentially drop, please note the potential very long term upside, relative to the potential downside.  I sincerely hope I am making my point that those that are in this for the long term have a tremendous opportunity before them.

I am also seeing signs of clearly evident tension among those looking for lower lows along with me.  Moreover, the recent rally has emboldened those whom have now likely called their 7th “FINAL” bottom in the metals in the last 3 years.  And, yes, I categorize them all as being afflicted with chronic “broken-clock” syndrome. Eventually, they will be right.

In fact, I have been attacked and scoffed at more times than I can count due to my being cautious during these “bull-fests” which, to date, have always ended badly for the bulls.  So, while all those that have scoffed have been badly hurt in this 3+ year correction, forgive me if I continue to apply the methodology that has kept us on the right side of this market more so than most.  Remember, for those that followed my trading rules with me, we went long silver and miners at the lows in November, and will only short when the market makes it clear to do so.  Therefore, even though we are “looking” for lower lows, we have still been riding the long side of this move until the market makes it clear that profits will be garnered in trading the other direction.

So, while silver has the clearest potential for a bottom being in – which we have discussed many times before - the pattern off the lows in GLD and GDX is much less clearly impulsive.  For this reason, I have to assume that the bottom has not yet been struck, which then leaves us with the question of how we get to those lower lows.

At this time, as long as GLD is able to maintain over the 118 region on all pullbacks, it does leave the door open to a potential bottom being in place.  However, I am still looking for an impulsive move taking us below 118 to signal wave 1 down in the final 5th wave I am still expecting.  Yet, should we maintain over 118, and continue up to at least the 130 region in 5 waves off the November low, then that is a strong indication that the bottom is in place, and all pullbacks from that point that take us back down to the 118-122 region can be bought, as the market would then be providing a strong signal of a long term bottom being in place.  Again, this is not my primary expectation at this time, but I have to note what I will need to see to prove that I should not reasonably maintain my primary expectation of lower lows to be seen in 2015.

As for silver, we can still see it climb towards the 18.80 region (a=c) and still maintain the count for lower lows being seen.  But, until I see a 5 wave structure taking us below 16.70, I have no reason to aggressively short yet.

Now, I am not sure how much more clear I can be with regard to my perspective in the metals, but I still want to reiterate it one more time.  I still believe that lower lows will be seen, despite, and maybe even due to the exceptional bullish sentiment we are now seeing, especially without a clear 5 wave structure having completed into the recently struck low levels.  Yet, should the market prove me wrong with a full 5 waves up off the November lows, I will then be switching to buying the dips.  For now, I will simply remind you that I strongly suggested going long at the November lows in silver and miners, and have no reason just yet to aggressively short this market.  We are still riding those longs since the November lows, while keeping a wide open eye out for a signal to short the market for the lower lows that I still ideally expect before the long-term bull market resumes.

See charts illustrating wave counts on the GDX, GLD, YI and HUI.

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at: info@elliottwavetrader.net.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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