Saturday, October 30, 2010

The Big Picture for Gold and Silver - November 2010

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This first daily chart examines the gold secular bull market beginning in late 2001, with emphasis on the relationship between C wave tops and the underlying 200 day moving average, and provides some guesstimates for just how high gold will fly in the months ahead.  In brief, I am thinking that gold could reach as high as $1,600 in the next 5 weeks and $2,000+ before this C wave has concluded next late Spring.
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I am indebted to Toby Connor of Gold Scents and Gary Savage for much of my analysis.
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There are various techniques for guesstimating the height which the parabolic C wave of gold's repetitive ABCD wave pattern will rise.  One of the standard approaches is illustrated here and is simply the percentage price is able to rise above the 200 day moving average, before plummeting back towards earth.  
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A couple of things about the ABCD pattern.  Notice how each successive pattern has become generally larger, longer and more capable of propelling price higher above the 200 dma.  And, of course, notice that each C wave concludes with a parabolic advance.
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(For a detailed look at gold's repetitive ABCD pattern, examine the chart here).
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It is thought that the current C wave will transpire over 3 stages or phases.  
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Phase 1 concluded this past December 2009 at the time of the US Dollar yearly cycle low and at a price of $1227 - 25.3% above the 200 dma.
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Phase 2 of the current C wave appears to be entering its final right translated daily cycle which could propel gold price to $1600 - some 30% above the 200 dma.  At the time of this writing, gold is only 10% above the 200 dma, so we are talking about quite a move and quickly throughout the month of November.
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Phase 3 is thought to coincide with the major 3 year cycle low of the US Dollar expected in the late spring of 2011.  A rise above the 200 dma of approximately 50% would be a truly parabolic climax to this, the largest and most massive C wave to date - and yield a top somewhere around $2,000+.
  
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Silver is likely to strongly outperform gold.  It does not trade in the repetitive ABCD pattern as does gold.  However, it absolutely has its own parabolic advances that can be measured in terms of their height above the 200 dma.  Another metric often used to guesstimate the height of a silver parabolic is the historical ratio of the price of gold to silver at previous parabolics.   Without going into those details at this time, that ratio is still far away from what is possible if not likely for our current silver advance.
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Silver is currently 32% above its 200 dma.  If we assign a percentage consistent with previous parabolics, say 60%, silver could easily reach $32 by the end of November.  Silver closed last Friday just below $25.
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INVESTMENT STRATEGY:  I have done well using the TSI to trade short term surges in the momentum of mining stocks.  However, I do not anticipate this strategy to be particularly advantageous during a parabolic rise in gold and silver.  Rather, a buy and hold strategy would probably work the best and once I have my portfolio set I will resist 'overtrading' for the next several weeks.  
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Some ETFs that I will now consider purchasing:  SIL, AGQ, GDXJ.  Their charts are presented individually below.
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7 comments:

  1. Thanks for your insight John! I will have more time to work on charts this week LOL!

    Fasening my seat belt!

    Bob

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  2. Thanks Bob. Please just remember that no one, starting with myself, has a crystal ball. I have provided analysis that, at best, is statistically possible, and at worst is a fool's dream. Use caution and keep your eye on the ball, please.

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  3. John, Having had my head handed to me in the Fall of 2008, I am wary of buy and hold during "stress" points. Like the election and QE2 next week. Please give me your thoughts on the following strategy. Rather than buying the ETFs you mentioned or futures contracts, how about options. This would limit losses in a surprise correction but would give plenty of upside exposure. Another hedge might be to buy VXX. If QE2 underwhelms, the VXX could go parabolic. Lastly using your TSI strategy it appears most things PM look very good on the daily, even weekly. Given that, what is the chance things would really turn on a dime with little or no TSI warning?

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  4. Hi Rick and thanks for your interesting thoughts/questions. I did very well in the Fall of 2008 using TSI so on that subject, I am not particularly concerned about avoiding the stress points generally - indeed, they can create tremendous opportunity if you are on the correct side of the market.

    However, I have absolutely no intention of being either short (TZA) or long (TNA) when the FED announcement is made. That is pure gambling and I want no part of it.

    The use of options, as you suggest for the purpose of minimizing risk, is very valid IMO. People get themselves in big trouble when they use options to speculate (bet big) as opposed to limit risk (retain mostly cash).

    I agree the TSI is looking surprisingly good for miners on both a daily and weekly basis. As far as your turn on a dime question, that is an interesting one. I guess I am confident that if things 'begin' to turn I would see it in the TSI and MFI rather immediately.

    I do not personally think the FED is terribly concerned with the upward price of gold and silver. They have much bigger fish on the frying pan.

    The FED has a mandate to improve unemployment and defeat deflation. It's just a speculative guess, but my hunch is that they will go for the 'shock and awe' approach next Wednesday afternoon.

    To risk deflating the stock market with a wimp response, after all the build up, would really seem far away from their interests. They desperately need to provide liquidity - so they think - to get a floor under the residential and commercial real estate markets which are, or will be, imploding and deflationary. They also desperately need to do whatever they think is necessary to jump start the considerable unemployment.

    From his study of the Great Depression, Ben is convinced that the FED then did not do 'enough' to end the depression. If true, I cannot imagine he will intentionally repeat the same 'mistake'.

    (Personally, I think the FED did way too much and prolonged the Depression for years longer than was necessary to purge the system of excessive debt).

    And of course, if the FED does indeed go for the 'shock and awe' approach, gold and silver will go parabolic as hot money that has been left behind chases it to get in.

    In any event, printing up billions of dollars, however many, should ultimately be viewed by the markets as inflationary (which it is)....and it is difficult to see how that could push gold and silver down for very long.

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  5. Always a chance John, but a calculated, thought out one without emotional attachment I can live with the results.

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  6. http://astrocycle.net/index.php?Menu=Commodities&SubMenu=Gold

    I think this is not much followed site but I find them preety accurate. Look at Oct 29 (can be change in trend i.e. up ) and Jan 12, 2011 can be top around 1410-1500. They don't follow your ABCD pattern but if I co-relate then it may be top of current C wave. Then they have 2200 by Jan 2012 which I don't know how it will fit in next ABCD pattern. (on daily chart its month-date, on monthly chart its month-year) My favourat TA/cycle person Andre Gratian has 2200 P&F target but no timing yet but he has mentioned several years and I don't think he expects that level in spring next year. On longer term there is big top in 2020 for 40 yr cycle and speculation can be anything and it can be anything between 3500-5000. But since there are many years for 2020, my personal guess is we won't go to 2000 in this current C wave. As you have pointed out D wave is as bad as good of C wave when holding miners so one has to careful about where current C wave is ending.

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  7. Fergot to mention one more thing. 3 yr USD low mentioned in late spring can also be top of this equities bounce rally but my guess is gold may top before that itself. as if dollar low, equities high gold high all together then its so simple but i think some day just becuase dollar is going down other two goes up will not happen. so may gold will give that up first by topping before USD low. I think we are in longest C wave by months already and it may not stretch upto late spring for USD low to happen.
    Also 50% above 200dma etc should be kept for future as that is ultimate bubble and I don't think we are near to any such bubble yet. But again its all speculation and you may be right too.

    You have mentioned about some commentry of Ben and his study of great depression. Its all this theoritical study with no praticle backing. Grest depression truely ended due to WWII and not becuase of any monatary policies etc. We can't have WWIII (real military WW) so we have to have some other type of WW to finish this depression. It can be either bankrupcy of deveopled countirs and/or currency WW. No QE will end or help any of this. Its just means to go towards that WW. Just do some stimlation ..annouce that long term 30yr mortage rate at 2% and ask for applications and see how many more applicaiton comes. There won't be any mad rush of applicaiton even at that rate. Only thing that may work is giving actual cash to individual people. So instade x salary ask employers to credit 2x salaries to all employees (germany's hyperinflation) but do you think in modern america that is possible? All QE goes to only banks and not to individual people. We got only few stimulus dollars which are not even fraction of losses incurred by individual people. People say Japan and America is different. Japan was againg population and America has different mix. I find America even more problematic with no one want to do any hard work but just to consume for free.

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