First published Sat Oct 3 for members :  Since 2011, it has been quite clear that the metals have been in a downtrend, while equity markets have been in an uptrend.  But, over the last several months, I have mentioned in our Trading Room that I think we may see a paradigm shift soon, as I believe that they may begin to rally together as the stock market moves up in its next rally phase over 2300.  So, I have been looking for clues that such alignment may be developing.  This past week may have provided additional clues and the upcoming two weeks may solidify this new paradigm.

As many of you know, I still think that there is a strong likelihood that the equity markets see lower lows in the coming weeks.  And, as many of you also know, I still think there is a strong likelihood that the metals markets see lower lows in the coming weeks.  And, the upcoming week could align the two.

This past week, I noted the short set up that the metals were presenting.  So, while we caught the top of the move on Thursday, and then expected a rally off Thursday’s low, the rally was more than I had expected, and invalidated the immediate short set up.   Does that mean that lower lows will not be seen?  No, as I still believe lower lows will be seen.  But, it does open the door yet again to a bigger corrective rally to be seen in the upcoming week.

And, along with the corrective rally we are now seeing, it seems to have aligned with the corrective rally we have been expecting in the equity markets.  Moreover, if both the equity market and the metals market continue in this corrective rally over the next week, or even if both break support in the upcoming week, it seems that both will be setting up for declines which will take them to new lows within their respective corrections that can be completed over the next 6 weeks.  This would then set them up to begin to rally in unison for some time.

At this point in time, this is only a theory.  Clearly, I will need to see how the market develops over the upcoming week to have a much better idea as to whether this will, in fact, occur.  But, the set up for such alignment is clearly in place.  And, if we are to see follow through in these set ups, then it will likely take most by surprise as the common perspective is that they move inversely.  For this reason, I am simply laying the ground work to prepare you for this potential should we see confirmation in the next few weeks so that you are not caught flat footed, as the rest of the market is left scratching their head.

I want to digress a moment, and thank all of you who have written in as we were celebrating our 4^thanniversary.  We have received many posts and emails congratulating us and telling us that we have been the most accurate source of analysis for the metals and miners for the 4 years since we have been open.  We truly appreciate the support. 

But, I think I may be disappointing most of you this weekend.  But, I would like to quote Robert Prechter to explain why:

Of course, there are often times when, despite a rigorous analysis, there is no clearly preferred interpretation.  At such times, you must wait until the count resolves itself.  When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%.

Right now, I am about 50/50 as to whether this move higher will continue in the metals and miners, but have no set up in place to go net short.  Therefore, as of my writing this update, I remain net long.

As far as the wave structures are concerned, the GDX is truly in between two counts.  As you can see, as long as we now remain below 14.71, the blue count to take us down to lower lows sooner rather than later is still on the table.  A break out over 14.71 puts us squarely focused on the blue box for the purple count.  And, until we see the next i-ii downside structure, or see a completed upside pattern into the blue box, I will not be adding any further short side trades. 

The GLD presents rather similarly to the GDX.  As long as it remains below 110.82, the immediate downside set up is in place, but a move through it has us targeting the blue box overhead.

Silver is not much different than its brethren.  Resistance stands at 15.43, followed by 15.85-91.  Through secondary resistance, it can move up as high as 17.  And, as with the others, after being stopped out of my short with a small profit, I will not be looking down until the next 1-2 downside structure is in place.

I know that we have all been waiting quite patiently for the final lows to be struck in this correction, which has continued for over four years now.  But, several weeks ago, for the first time in 4 years, the miners and the metals moved into our target boxes set years ago.  So, I have been a net buyer of metals and miners, and will continue to do so on further declines.  (In fact, I am currently net long, and have no reason to change that position until I see the next i-ii structure set up to the downside). 

Due to the significant potential I see over the long term in this sector, most long term investors should now be focused on the long side of this market if you are serious about the long term prospects.  To me, personally, I only view any further declines as a buying opportunity and have no interest in trading further downside heavily. While I will still hedge my long term positions when the market sets up for further downside, and may even go net short depending upon the particular set up, in my humble opinion, the time for aggressively shorting this market has passed.      

Finally, the question I am constantly asked is what will convince me to consider that the bottom has already been struck.  Well, if the GLD were to complete a full 5 waves up to 122 or higher, then I would have to strongly consider that a bottom has been struck, and a pullback into the 110-115 region should be bought.  Until such time, I am still looking for one final wash out.

See charts illustrating the wave counts on the GLD, GDX and YI at https://www.elliottwavetrader.net/scharts/Charts-on-GDX-GLD-and-YI-20151004847.html.

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&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

A few bad choices come to mind: 

• 1971: President Nixon refused to exchange dollars for gold subsequent to August 15, 1971.  He claimed it was “temporary” and blamed speculators.  Gold prices and inflation soared.
• Mid-1990s: The Federal Reserve dramatically increased debt and the money supply and encouraged the NASDAQ “dot.com” bubble.  The bubble crashed in 2000 and destroyed $Trillions in assets and retirements.  Investors preferred stocks and bonds until after they crashed.  Gold and silver soared after 9-11.
• 2001: “Unknown” people created the 9-11 disaster.  That event became the excuse for the Patriot Act and wars in Iraq and Afghanistan.  History shows that a number of empires collapsed following their attempts to conquer either Bagdad or Afghanistan.  American foreign policy chose to ignore history and invade both.  The costs have been outrageous with questionable results.  Gold doubled and silver prices tripled between 2001 and 2006.
• 2004 – 2008: Banks and politicians encouraged the real estate bubble with easy money, “liar loans,” various derivative products, and delusions such as “real estate always goes up.”  The real estate market crashed and partially caused the 2008 financial collapse.  Pension underfunding, welfare expenses, food stamp participants, disability income, and the number of workers no longer in the job market have increased since then.  Gold doubled and silver prices tripled between 2004 and 2008.
• 2009 – 2015: Hope and change, QE, and ZIRP have been disappointing.  Those Americans in the bottom 90% are still hoping for better days but expecting little change.  ZIRP has destroyed earnings from savings, damaged pension funds, and encouraged mal-investment.  More ugly consequences of both QE and ZIRP will manifest in the next five years.  Gold and silver will soar in the next 2 – 5 years. 

The common elements in those “BAD CHOICES” were:

• Increased debt;
• Politicians;
• Bankers;
• And good timing for purchases of gold and silver.

Good Choices:

• 1971: Buy gold at $42 and silver at $1.50
• 1999: Buy gold at $280 and silver at $5.00
• 2001: Buy gold at $260 and silver at $4.15
• 2008: Buy gold at $800 and silver at $9.00
• 2015: Buy gold at $1,100 and silver at $15.00

Of course we can point to many other bad and good choices over the past 45 years.  Buying gold in early January 1980 and for much of the next 19 years was probably a bad choice, so do your own research to make good choices.  While trading paper currencies for gold is, in my opinion, currently a good exchange, it is not always a good choice.

 SUGGESTIONS: 

• Physical gold and silver instead of unbacked debt based fiat currency.
• Physical gold and silver instead of bonds that will eventually default.
• Less foreign military involvement instead of more wars, expanded military actions, and the resulting increased taxes and inflation.
• A 3rd party not owned by bankers and the military instead of a Republicrat or a Democan.

Make your own choices.  Consider real money, not the digital and paper stuff.

Read:

Steve St. Angelo: The Silver Supply Crunch

Alasdair Macleod: Gold Remains Money

Doug Casey:  Three Reasons Why the US Govt. Should Default

Gary Christenson

The Deviant Investor