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Gold & Silver: Dance of the Bulls. Part 3
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Figure 1 from May 19th commentary
Part two of Dance of the Bulls ended with the following quote “If you listen very closely you can almost hear it. The shuffling of feet as gold and silver traders slowly return.” Written on May 19, the chart above is from that commentary. It was my belief at the time that we were completing the final leg of a corrective wave (4), and about to begin a final impulse wave (5). In that article I said that both gold and silver could trade to a new record high during this next wave (wave 5).
This commentary will attempt to provide specific price targets for both gold and silver. We will combine both Elliott wave forecasting techniques combined with Fibonacci extensions to guide us to our conclusions and price projections.
As you can see from the chart below (figure 2), a daily chart in Japanese average (Heiken Ashi) format silver did find support and a bottom. The $32.52 price point for silver was a 50% Fibonacci retracement and also about equal a 76% retracement of this last rally. The chart below also shows we now have confirmation with the MACD technical study. The fact that the individual average candles have turned green signals a return of our bullish trend. Although we are clearly at a potential resistance point (the 50% retracement of this most recent rally), my long-term view remains bullish.
Figure 2 Daily Silver
Price Forecasting Models
By using traditional Elliott wave price models, as well as Fibonacci extensions we can provide some insight as to possible upside targets for both gold and silver. Typically wave 5 of an impulse phase can be either equal to wave 1, or 1.161% the size of wave 1. Figure 3 below is a daily gold chart with our current Elliott wave count and Fibonacci extensions. The area colored in purple is our favored price zone based upon the following calculations and assumptions. If wave 5 is simply equal to wave 1 in terms of its price move our target will be the lower part of this band at 1606. The top of this price band is created by projecting the price move of wave 3 and adding it to the beginning of wave 5. This creates a target of 1663. A 1.61 % extension of wave 1 would create a price target of 1686. Most important is the fact that wave five should in fact trade above the old record high of 1577 per ounce.
Figure 3 Daily Gold
Figure 4 below is a daily silver chart with the Elliott wave and Fibonacci extensions added. The difficulty in forecasting potential price target is that it violated one of R.N Elliott's laws which states that wave 4 cannot trade into the price area of corrective wave 2. As you can see from the chart below way for clearly violated that price area. It was Elliott's belief that market manipulation could create the kind of correction recently witnessed and silver, and thereby negate that rule in this particular instance. That being said as you can see from the chart below that a1.61 % extension of wave1, would simply take silverback just to its record top. With silver trading just above $38 per ounce at the time of this writing that would mean silver would rise in value another $12 from its current pricing.
We no longer have to listen very closely to hear the music. It is impossible not to hear the roar. The band is playing and the bulls are dancing again. It is this author’s view that this dance will last for a few more years, for we are in a Super Bull Cycle. Gold has been doubling in price about every 3 years That is certainly a reasons for the bulls to dance.
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Gary Wagner
May 30, 2011
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Gary S. Wagner has been a technical market analyst for twenty five years. He is the executive producer of the daily video newsletters “The Gold Forecast� and “The Silver Forecast�. He is the Co-author of “Trading Applications of Japanese Candlestick Charting�. A frequent writer for Technical Analysis of Stocks & Commodities magazine, he also Co-developed “The Candlestick Forecaster� software application for market forecasting.
Copyright © 2011 Gary Wagner All Rights Reserved.
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