As you will discover from the charts
and information in this article, the previous three gold and silver
parabolics (2004, 2006 and 2008) had a common characteristic. Each
exhibited a midpoint consolidation - a resting place that separated the
character of the first half and second half of the parabolic move. This
observation is particularly relevant at this time, as both gold and silver
have presently completed this midpoint consolidation and are already on their
way to concluding the 2011 parabolic.
Let's begin with the previous
parabolics in gold and silver and work our way towards the current
situation. At the conclusion I will show you what I think is likely to
power the 2011 parabolics to completion.
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The gold 2004 parabolic had a midpoint
consolidation around and below the $387 price area. Once price cleared
this area, the second half of the move was both decisive and relentless.
*
The silver 2004 parabolic consolidated
at and below the $6.62 price level. As with the 2004 gold parabolic,
once price cleared the consolidation area it continued higher powerfully and
without hesitation.
*
The 2006 gold parabolic consolidated at
and below the 577 price area. Once price cleared this range it headed
north and without wavering or hesitation.
*
The 2006 silver parabolic spent quite a
number of weeks back and filling before reaching its half way point just
below $11.00. But once the first leg was concluded price movement was
nearly vertical and extremely swift.
*
The 2008 gold parabolic featured a
pennant pattern that divided the entire move into two equal segments, and
formed just under the $836 price area. Price in the upper half of the
move needed to slow itself down a couple times (red candles) to keep in
essentially identical slope with the lower leg of the move.
*
The 2008 silver parabolic exhibited a
bull flag at about the 1/3 mark, then spent a few weeks consolidating half
way up the entire move, around $16.30. As we have observed to be
typical, the upper half of the parabolic move, once it left the midpoint
consolidation area, was swift, decisive and powerful.
This now brings us to our current 2011
gold and silver parabolic. I am switching software at this point from
charts by StockCharts to FreeStockCharts, the reason being that the
latter allows me to adjust the price height of anticipated future price
movement.
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So here is our present situation with
gold. It appears to me that the midpoint price consolidation area has
occurred beneath the $1425 price level. Gold appears ready to rocket
launch into the upper half of its parabolic move. Price is projected to
the $1700 area.
This current week appears as a red
candle breather, similar to the price action of the preceding intermediate
cycle. The True Strength Index (TSI) momentum indicator is rising above
ZERO and I expect it will continue to rise.
*
Silver is a step ahead of gold in that
it has already broken above its midpoint consolidation price area of $32, and
is presently trading near $36. The weekly TSI indicator as yielded a
bullish trend line break buy signal and I expect silver to continue higher
week after week, as it has in the 2nd half of each previous
parabolic move. Using the midpoint consolidation concept, price is projected
some 40% higher to around $48.
*
Finally, here is a weekly chart of
PowerShares DB US Dollar Index Bullish Fund (UUP) which I am using as a proxy for the
chart of the US Dollar.
We can see that the US Dollar is
literally on the precipice of a waterfall decline below key support at
22. This roughly translates into 76 on the US Dollar Index.
The TSI momentum indicator is below
ZERO and falling. This is bad news for the US Dollar and I view it
highly unlikely it will be able to rebound, let alone hold this level.
Once the US Dollar begins to fall below support it will trigger both panic
and a flight to gold and silver. And I believe this will power the concluding
leg of the 2011 gold and silver parabolics.
John Townsend
John
Townsend invites you to visit his website at www.theTSItrader.blogspot.com. He usually offer a few
posts each day on his market observations, often comment on the
particular stocks he is currently trading, and tries to show ways to use the
True Strength Index indicator to make some sense of where the precious metals
and their miners are heading. Please do not hesitate to contact him.
