This article was presented to the benefit of subscribers on October 27,
2014
This is probably not the type of article anyone who owns precious metal
stocks would like to read, but here it is. The analysis presented today
illustrates short-term and mid-term outlooks up front, with the Elliott Wave
count indicating the longer-term trend expected over the next 5-7 years. I am
not really going to provide much information on investment strategies around
this analysis, but if one connects the dots, it should reveal a crystal clear
picture.
Ratios
The daily chart of the gold/silver ratio is shown below, with Bollinger
Bands® in proper order of alignment, indicating no overbought or oversold
conditions exist. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K above the %D in all three instances. Higher highs have
been put in place, but it appears sideways to downward price action is the
next likely trend.
Figure 1
The daily chart of the daily chart of the gold/oil chart is shown below,
with the US Dollar denoted in black. The upper 21 MA Bollinger Band is above
the 34 and 55 MA Bollinger Bands, indicating an overbought condition is
developing. Lower 34 and 55 MA Bollinger Bands have yet to curl up, indicate
that a top has been put in place or are looming. Full stochastics 1, 2 and 3
are shown below in order of descent, with the %K beneath the %D in 1 and
above the %D in 2 and 3. The chart is not very telling, but the ratio appears
to have broken out of a trading range, so over the near term, expect gold to
continue to outperform oil on a relative basis.
Figure 2
The weekly chart of the HUI/Gold ratio is shown below, with gold denoted
in black. All three upper Bollinger Bands are curling up, indicating that
weakness in the HUI relative to gold is likely to continue for at least
another 3-5 months. The ratio has plumbed to new lower low, indicating the 12
month consolidation was merely a pause between two down legs. This ratio
could decline down to 0.05 if we have a repeat of 1999-2000. The US Dollar
Index has not even started to break out yet and when it does, being in
precious metals will be one of the last places one will wish they had money.
Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K
beneath the %D in 1 and 2 and above the %D in 3. The %K in stochastic 2
breaking below the lower downtrend line from 2009 until mid-2014 was a very
bearish setup, indicating failure. Extrapolation of the %K in stochastics 1
and 2 suggest a mid-term bottom is not likely to be put in place until around
late December 2014/January 2015.
Figure 3
Gold
The daily chart of gold is shown below, with the lower 21 MA Bollinger
Band beneath the 34 MA Bollinger Band, indicates an oversold condition. Upper
Bollinger Bands have the 21 MA Bollinger Band beneath the 34 MA Bollinger
Band, so there is a pull between oversold and overbought conditions. A lower
high was put in place at $1255/ounce, indicates sustained weakness in gold. Full
stochastics 1, 2 and 3 are shown below in order of descent, with the %K above
the %D in all three instances. The daily chart at best suggests continued
sideways price action for another 2-3 weeks and aside from that, there is
nothing really to extract from this chart.
Figure 4
The weekly chart of gold is shown below, with the lower 21 MA Bollinger
Band beneath the 34 and 55 MA Bollinger Bands suggests an oversold condition
continues to develop. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in 1 and 2 and above the %D in 3. With
all three upper Bollinger Bands trending sideways, it would not take much to
get them to curl up to indicate another down leg in gold. The weekly chart is
not very telling, which suggests caution. With strength in the US Dollar
Index hinting at no reprieve until at least August 2015, there is no reason
to even attempt to play the precious metals arena at this particular point in
time.
Figure 5
The monthly chart of gold is shown below, with oversold conditions that
existed for 10 months completely dissolved. A monthly close below $1175/ounce
would set the stage for the potential to hit $600/ounce if the second down
leg was to be equivalent to the first. The price of gold does not have to
decline to $600/ounce, but the potential setup is there. Sideways price
action for nearly 18 months in the price of gold with a series of lower highs
and a flat bottom puts extreme pressure on gold to maintain pricing stability
above $1180/ounce. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in all three instances. Extrapolation of
the %K trend in stochastic 3 indicates no sign of a bottom anytime soon. The
monthly chart suggests fresh lows are established before June 2015. There
likely will be a bounce around this time that should coincide with weakness
in the US Dollar. Remember that the US Dollar is likely in a new bull market
lasting for at least another 5-6 years. Based upon this, it stands to reason
that commodity prices remain weak over this period of time.
Figure 6
The short-term Elliott Wave count of gold is shown below, with the start
of a new leg down after breaking below the B-D line of the triangle. Wave C
was equivalent in time to waves A+E, so from a triangle perspective, this
fits the count quite well. A collapse after the breakdown to test the late
2013 support and bouncing is further validation that his pattern is correct.
Based upon this pattern, wave (E) is likely to last for at least another
11-12 months before a final bottom is put in place. The absolute bottom in
gold is likely years away, given that the US Dollar is in a 5-6 year bull
market. Any daily close below $1175 is a strong indication of lower lows
directly ahead.
Figure 7
The mid-term Elliott Wave count of gold is shown below, with the
longer-term count shown over the past 7 years. It is important to note that
the entire move from 2008 until present is thought to be a part of the same
pattern. Following wave (E), this will complete higher Degree wave [C], which
should be followed by wave [D] up and then wave [E] down. Based upon this
pattern and knowing that wave (E).[C] has at least another 12 months left
before bottoming, the remaining two waves should each consume at least 2-3
years each. If one does the math, the shortest expectation for a bottom in
precious metals is in 5 years, or 2019 while the longest expectation for a
bottom is 7 years, or late 2021/early 2022. There is no reason to warm up to
precious metals anytime soon, aside from those who want to collect bullion as
an averaging down approach. I thought this wave count I had was spooky and
did not assign much validity to it, but examination of my US Dollar count
indicates it probably is quite valid now in retrospect.
This is not what anyone really wants to hear, but in the current environment,
a rising US Dollar is the symptom of deflation, with everyone seeking to
preserve capital. There will be time to buy gold again...maybe when we hit a
bottom in wave [E] near 2020, but there will be a very nice trade once wave
[C] bottoms. The trade for the next 8-10 months? Being in US Dollar based
investments, with index funds based upon the S&P 500 Composite Index. I
decided to post this on the web because there are so many Gold BUGS expecting
gold to vault to the moon. In the current environment, if it was to have
happened it would have already started...With this, I bring you the Obituary
of Gold. It will rise like Phoenix out of the ashes, but first it must be
laid to ashes. And that should happen over the next 5-7 years, as per the
Elliott Wave count of Gold.
Figure 8
That is all for today....I will update the AMEX Gold BUGS Index tomorrow
AM. Have a great day.
