The Dance of the Bulls; No Gold or Silver Bubble Here
It’s been nine days since I published my last commentary for Kitco. In gold or silver talk we are talking ancient. That article is already dust laden and sitting in the archives. Silver was flirting with $45 not $50 dollars an ounce. The $1500 benchmark that gold was trying to break above is now but comfortable support level, a former price point that has now been conquered. We will soon say the same for $50 silver. Over the past two years I have expressed my belief that we are currently in a super bull cycle. This thirteen year super bull cycle began in around 2002 and since then gold prices have never looked back.
In 2008 gold began the greatest single run in the history of precious metals. That was until silver joined the race and quickly moved to the lead spot. The bottom line is that all of the precious metals are performing brilliantly.
Lately there has been talk about the possibility of a price bubble, a price meltdown. Can we witness a price bubble when current precious metals prices are in line with intrinsic value? A parabolic rise and fall, maybe, but not a price bubble. If this were a bubble, it would be the longest bubble in history. Gold has doubled in price every three years since 2002.
Gold is the benchmark by which all currencies are weighed against. Gold will always have has intrinsic value, paper currency will not. If the US dollar continues to weaken gold has nowhere to go but up. European Union debt, global inflation, a Mid-East geopolitical crisis and nuclear disaster in Japan; the fundamentals remain extremely bullish.
The two charts below are daily gold and silver charts with the current Elliott wave count and MACD (moving average convergence divergence). One way to verify whether a wave is still in play is to compare it to the MACD. Whenever a wave begins you will see the MACD lines cross shortly thereafter, confirming a change in price direction.
If the MACD line does not cross shortly after a counter trend emerges, odds are that the current wave and trend will remain intact. It is clear from the charts below that the current bullish impulse waves in gold and silver have not concluded. Evident in both of these charts is the divergence of the two MACD lines. Based upon the MACD wave three in silver and gold are still very much intact and in play.
Figure 1 Daily Gold Chart
Figure 2 Daily Silver Chart
When viewed within the Elliott wave count we are currently in the third intermediate impulse wave found within a major fifth wave. The question becomes how high might this rally go to. Based on the current activity in gold, we could see this current impulse wave (wave 3) trade as high as 1592 per ounce. This is based on the price change seen in wave one and multiplying it by 1.62% ($132 move X 1.62 % = 212). If we add $212 to $1380 (the start of wave 3) we get $1592 per ounce. Wave three will be followed by a correction (wave 4) and then one last impulse wave. The final impulse wave in this phase could be as powerful as this current wave. The Bulls are clearly dancing, and why not, it’s the party of a lifetime.
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By Gary Wagner,
April 29, 2011
Gary S. Wagner has been a technical market analyst for twenty five years. He is the executive producer of the daily video newsletters â€śThe Gold Forecastâ€? and â€śThe Silver Forecastâ€?. He is the Co-author of â€śTrading Applications of Japanese Candlestick Chartingâ€?.Â A frequent writer for Technical Analysis of Stocks & Commodities magazine, he also Co-developed â€śThe Candlestick Forecasterâ€? software application for market forecasting.
Copyright Â© 2011 Gary WagnerÂ All Rights Reserved.