Gold and Silver – 9 Dec

GLD  is correcting lower after forming a double top around 139. It is unclear to most if gold will consolidate or power ever higher on the atrocious fundamentals, I mean lack thereof, of paper currencies. When looking at a chart we must stick to technicals, then apply any bias that we have with our knowledge of the fundamental picture. The fundamental picture has not changed and will not until the global monetary system either undergoes radical change or collapses in a supernova of debt.

The technical picture is not reassuring for an imminent new high. We currently have divergence between price, RSI, and MACD. Meaning simply that price has gone higher on waning momentum, where lower highs in RSI and MACD are coming with higher highs in price. This is a contradictory indication and signifies that price may not be fully supported market behavior. Also, I have marked some apparent waveforms with corresponding red and green numbers that represent Elliot Wave theory. This is a complex area of technical analysis, but simply the theory suggests that price action follows a consistent waveform, where waves follow a 5 beat count followed by a 3 count reversal. Recent wave counts suggest that we have completed a 5 wave set at the recent high and currently may have completed wave 1 of 3 to the downside. This of course remains to be seen, but should be considered along with the divergence present. If this wave count proves correct, then a test of the 45 day moving average may be in the cards with a lower low than the recent 133.88. Wait and see seems to be prudent at this juncture.

SLV is in a similar boat with an important difference. Notice the divergence between RSI, MACD, and price. The red trend lines all have negative slope while the green price trend line has positive slope. This is a warning that technicals are in conflict. The important difference at this point is that the Elliot Wave count suggests that instead of being in a down swing like GLD, SLV may have just completed wave 4 of 5, with 1 remaining wave to go to complete the structure at a higher high than 30.0. I have annotated the chart with a 5? that suggests this is possible. Wave counts are not an exact science and often they are adjusted more than once. It is simply another tool to add to the toolbox. It has to be considered and then biased with other technical indicators, and then finally with the fundamental picture. This last run has seen technicals take a back seat because of the overwhelming physical demand that is deconstructing the huge short in the paper market. The question with silver is quite simply whether we are witnessing the death of the illegal short, or whether it will still live, limping along as we go. I suggest the latter. Be very careful with silver, maintain tight trading stops.

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