The Big Picture

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Today, I focus on Technical Analysis and Elliott Waves to try to make sense of what is going on. The fundamentals are a hot mess, who knows what we’re going to get next? The banks remain heavily short in gold but far less so in silver. Sentiment is becoming more bearish, but we’re nowhere near extremes. The DXY is trending higher, but how far will it go? 106 is “possible,” but it may have just peaked too. USD/JPY is the dark horse. It is rebounding recently, but unless it takes out the high of 145, a break and close below 137.30 would be extremely bullish for the metals and miners.

With so much confusion right now, it always makes sense to step back from the daily noise and look at the big picture:

The monthly chart for gold clearly shows that we’re in wave 5. This means that gold is going much higher, much like it did in wave 3 to new record highs in August 2020. Only a close below 1631 negates this virtual certainty.

Skipping the weekly chart, as it tells us basically nothing, let’s go straight to the daily chart:

The daily RSI and MACDs are basically neutral, which also tells us nothing, so I omitted them.

Initially, it looked like wave (2) of 5 bottomed at 1915 on a closing basis, 1900 intraday. But since then, with the help of a new front contract for gold, we got a break above the key 2000 level, for one day! In other words, a fake breakout, which is extremely bearish.

In a quick aside, if I was a Bullion Bank and I wanted to catch everyone off guard, I would allow gold to peak above 2000. This would ensure that everyone and their dog becomes bullish. Then slam gold back down, forcing new long positions to cover, i.e., sell, creating momentum to the downside in price. That is exactly what is happening.

This opens the door to a bigger wave 2 retracement than previously anticipated. What I thought was the wave (2) bottom at 1900, may now be just wave A of (2) in a classic A-B-C correction. The peak above 2000 was wave B, and now we’re heading down in wave C. In order for this to be true, 1900 needs to be taken out. Otherwise, the original wave (2) bottom at 1900 remains in place and the peak above 2000 was wave (i) of (3) and now we’re in wave (ii) down of (3) and next comes the big rally in wave (iii) of (3) to new record highs.

Simply put, until 1900 support is broken to the downside, the trend remains up.

However, if 1900 is broken with gusto, then the targets for the bottom of wave C of (2) are 1850, where wave C = wave A in size, or 1750, where wave C = 1.618*A.

While this would be disappointing given the move above 2000, wherever we bottom, as long as it is above 1631 on a closing basis, the next move up is to new record highs, via wave (3).

Remember, none of this matters if we hold 1900 support. Then we take a more direct route higher. But if 1900 is broken, we could fall to 1850 or 1750 before we head higher again.

Silver

What goes for gold, goes double for silver…

Wave (2) in silver looked like it bottomed at 22.14, but a bigger wave (2) drop could reach 21, where wave C = A. The 61.8% retracement of the rally from 17.40 to 26.43 is also ~21.

Worst-case is 18.50, where wave C = 1.618*A.

Again, wherever we bottom, as long as we hold the low of 17.40, the next rally will break the previous peak and may even test 30.

As with gold at 1900, as long as 22.14 holds, the risk remains up. Below 22.14, then 21 is my preferred target for the low in wave (2) and the beginning of wave (3).

Conclusion

We’re going up to new record highs either way, IMHO, but there are two very different routes to get there. The direct route or the indirect, where we have to be patient yet again.