The strength in gold prior to the Labor Day weekend was impressive and the positive weekly and daily technical studies suggest further gains are likely. The Fibonacci projections from our January report (See Fibonacci Analysis—January 2009) are still valid, but additional targets can now be derived, and I will now also apply the same analytical techniques to silver, copper, and platinum.

Figure 1 - Click to Enlarge

Towards the latter part of January 2009, gold overcame the 61.8% retracement resistance of the decline from point b to point c, which suggested that the correction in gold was over. This also suggested that the 2008 highs (point b) would be overcome, and though it has not happened yet, it is still the favored scenario as the weekly triangle formation (blue lines) has just been completed and the upside breakout was confirmed by new highs in the OBV. The OBV has been leading prices higher for the past two years. Once above the 2008 highs, the 127.2% target from point b to c comes in at $1130 with the 161.8% target at $1252. One can also use the rally from the 2006 lows, point a, and the 2008 highs, point b, for additional projections. From point c, a rally equal to that from points a to b would take gold to $1170 with the 161.8% target (not shown) at $1467.

Figure 2 - Click to Enlarge

Let's take a closer look at gold using the daily chart of the December gold futures contract. The rally from the November 2007 lows, point f, failed at $1015, just below the July 2007 highs and $45 below the March highs at $1060. Since the February highs, gold has traced out a triangle formation that has just been completed. Using the distance from points f to g, a 61.8% rally from point h would take the December contract to $1063 (in black), while the 100% target is at $1186. The decline from point g to h can also be used to generate retracement upside targets with the 127.2% level at $1057. The 161.8% target from g to h is at $1106. It is also interesting to note that the decline from point i to point j was 61.8% of the decline from point g to point h. The triangle on the daily chart can give you another price projection as if you use the height of the triangle (line 1), and then, projecting up from the breakout point, you get a target at $1163, line 2. Putting this all together, it seems very likely that the old highs and our first target zone at $1053-$1063 will be reached. Then, after a pullback from this area, gold should eventually reach the $1130-$1186 area, with a midpoint at $1158.

Figure 3 - Click to Enlarge

Neither the weekly technical studies nor the Fibonacci projections are nearly as clear on silver as they are on gold. The gold to silver ratio (not shown) has turned lower, suggesting that silver may outperform gold. Though both the weekly and daily technical studies are positive on silver, they are not yet giving strong signals for upside acceleration. The weekly OBV has been above its WMA since early August but has not yet broken out above major resistance. A move in the OBV above the 2008 highs would be much more positive. The major 61.8% resistance of the decline from the 2008 highs (point a) to the 2007 lows (point b) is at 1650 and is just being tested. Once again, using the length of the rally from b to c and projecting up from d, the 100% target is at 1789 with the 161.8% at 2171. Then, based on the correction from point c to d, the 161.8% level (in blue) coincides with the major 61.8% resistance at 1640 (point e), and the 261.8% target is at 1932. Based on the rally from points d to e, the 161.8% projection from point f is at 1971, so the cluster at 1932-1971 seems to be the next major target.

NEXT: Analysis Continues on Copper, Platinum, and Metal Stocks