Elliott wave analysis is the blade-proof glove with which “to catch a falling knife”. Gold and Silver has been crashing for a while now, and despite Bernake’s printing press, Inflation is nowhere to be seen and commodities are taking a beating, as if deflation is the threat. Let’s look at analysis from June 20th of this year:
By Elliott Wave International
In the wee morning hours before dawn on Thursday, June 20, the precious metals’ rooster crowed, “Cock-a-doodle-DOH!”
It was the ultimate wake-up call:
First, gold prices plummeted 4% then 5% then 6% below $1300 per ounce to their lowest level in nearly three years. Soon, silver followed in an even steeper drop below $20.
At 6:45 am, one popular news outlet went live on the scene and wrote: “It’s a bloodbath at the moment with most technical support levels being broken … calling a bottom would be like trying to catch a falling knife.” -Marketwatch
As for what triggered said knife to fall, you ask?
Well, according to the usual experts and every mainstream news outlet under the sun, the gold and silver bottom fell out after investors digested stimulus-tapering comments from the June 18-19 Federal Open Market Committee minutes.
Upon closer examination, though, there are several problems with this notion:
- Fears of the Fed starting to twist shut its QE tap are anything but new. Gold and silver investors have had months to digest this potentiality.
- Not to mention the fact that the June 19 minutes made no direct mention of actually stopping its bond-buying program. FED Chairman Ben Bernanke was hypothetical at best, saying, “IF the incoming data are broadly consistent with … and remain broadly aligned with our current expectations … it would be appropriate to moderate the monthly pace of purchases later this year.”
That’s hardly a cease-and-desist order.
- And, last, gold and silver prices did not fall immediately after the FOMC minutes were released. In fact, they rose. Headline: “Gold Prices Show Muted Reaction To Upbeat Fed” (Mining.com)
In plain terms: Gold and silver’s June 20 thrashing was not
a news-driven move. After all, research shows news and events do not drive stocks
and other financial asset prices.
That leaves this explanation: The gold/silver sell-off was the most probable scenario as outlined by the Elliott wave playbook. In this case, that playbook is EWI’s Short Term Update.
In the June 17 Short Term Update — before the FOMC meeting even got started, mind you — our analysis set the bearish stage in gold and silver via these charts and analysis:
“[Gold]’s overall trading remains weak. The bounce we noted last evening is over…. A decline through $1373 should indicate that wave __ of __ down is under way. The downside potential indicates at least a sell-off into the $1250-1300 range.”
“[Silver] remains weak and prices appear on the verge of declining to new lows beneath $20.07…. Our near-term stance remains bearish.”
Gold and Silver Defy Bulls’ Optimism
Gold and silver have been all over the financial news.
On Thursday, June 20, silver fell below $20 (-60% from 2011 high), and gold fell below $1300 (-30% from 2011 high).
We first published the chart below after metals plunged in mid-April. It shows EWI’s forecasts not only leading up to those big moves … but during the past three years of opportunity.
Three years of volatile price action in these two markets is plain to see. And the forecasts speak for themselves.
Overwhelmingly, most metals experts favored the other side of the gold and silver trend for the past three years – and they still do today. Meanwhile, EWI subscribers were prepared ahead of time for nearly every important turn.
Now, some periods are more vexing than others. But currently we are in a period where the wave patterns are particularly clear.
Metals prices may bounce higher near-term – like we warned they would do after the April 16-18 lows – but the quotes on the chart clearly show how countertrends are the source of opportunity. And that is the great strength of pattern analysis via the Elliott wave method, along with tools like sentiment, momentum and price.
For a limited time you can see the full story in metals in a free report from EWI. See below for more details.