Monday, July 15, 2013

Short-term Elliott Wave of Gold and Silver

As mentioned before, we are about to embark on a Gold Analysis Marathon to understand Gold's future prospects. Gold has been declining for the past ~3 years, and is in a profound bear market. Since topping out at 1910, gold has declined below 1200: ~38% decline. While Gold has been declining since September 2011, Stocks and Bonds have been rising (Bonds have started declining recently). This development has resulted in Gold market's oversold condition, while U.S. Stock Market has rose to extremely overbought levels.

Warren Buffet once said, "One should invest when blood is flowing in the street." At this point in time, both Wall Street and Bond Street are sitting pretty, while blood is flowing in the Gold Street.  Therefore, according to Warren Buffet's theory it might be a good time to invest in Gold/Silver (Precious Metals). However, before making such an investment decision one must perform thorough analysis, so that his investment decisions are based on best possible market information.

In this regard, lets analyze the Gold & Silver market's Elliott Wave pattern on a short-term time frame. This analysis will help us identify near-term critical levels, and whether or not recent rally complies with the Elliott Wave requirements of a rally start phase.

On June 27, 2013 Gold prices bottomed at 1180 and have since risen above 1290. Following chart shows the Gold price action since June 27 bottom.

From an Elliott Wave perspective, Gold's rally from June 28 can be divided into a sequence of 1s and 2s, with each wave being sub-divided into 5 sub-waves. This rally structure suggests that current Gold rally has legs, and could mark something significant. 5-Waves rises mark market trend changes. Every rally starts with a 5-wave up and 3-waves down sequence. These building blocks combine to form larger degree 5-waves, and so on.  

Another important feature of Elliott Wave analysis is that it also defines the risk level for investors. Risk level for Gold right now is 1180. A decline below 1180 would negate the possibility of a long-term uptrend move. And therefore, should be used to manage risk.

As far as Silver is concerned, it is sporting a similar 1 2 pattern with each up-wave being sub-divided into 5-waves. As mentioned above 5-waves are a sign that trend has changed from down to up, and that we should expect continued upside for Silver.

Critical level for Silver investors should be 18.00. A decline below 18.00 would suggest that silver has further decline left before the bear market comes to an end.

From Gold & Silver's near-term Elliott Wave analysis, it is highly likely that both precious metals have bottomed in the near term. And we should expect further gains. However, if the critical levels are broken, it would suggest that decline has not ended yet and we should wait for a better entry point. In the future posts, we will perform detailed analysis on Gold at different time-frames. This will help us in better understanding the nature of upcoming rise and will hopefully enlighten readers to make better educated decisions. Please review previous post of details of upcoming Gold analysis. If you want any special analysis, please leave comments below.

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