Are We Ready for a Gold And Silver Rally?

12/05/2017 11:00 am EST

Focus: COMMODITIES

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

In the coming weeks, I expect that any rally seen will only be corrective, and will be followed by an equally strong downside resolution before this larger corrective action has completed, writes Avi Gilburt, technical analyst and author of ElliottWaveTrader.net.

Many of you who follow my analysis have learned quite well how I look at the market. And, those of you who have read me in the past know that I do not view fundamentals as being relevant to determining when we can see a major turn in the metals market. 

In fact, in 2011, the fundamentals for the metals market were exceptionally strong, with most everyone believing in the certainty of gold exceeding the $2,000 mark, just before we began a multi-year pullback. 

Moreover, the fundamentals were terribly weak just as we were hitting the bottom in 2015, with most market participants being certain that gold was about to break below $1,000.

So, I get many emails from followers who forward me other articles they think I will find amusing, especially ones that like to highlight the fundamentals. But, this past week, one statement really caught my eye.

At the start of this particular article, the article writer began with the following sentence: “Too many technical analysts dismiss fundamentals. True, technicals usually lead fundamentals but understanding the fundamental drivers (when it comes to gold) can give you an edge.”

For those who read me often, I am quite certain you know what I am about to say. In fact, I even posted this sentence in my trading room at Elliottwavetrader, and asked for comments. And, these were some of the comments I received:

“Too many people dismiss B. True, A is usually ahead of B but taking into account B can give you an edge.” What? If A is usually ahead of B, then B is usually useless. So his statement makes no sense.

“Reminds me of a good quote from The Complete Turtle Trader: A technical trader (trend follower) is purchasing quantitative information from a Wall Street fundamental analyst and notices that they both have a number of the same positions open. When he queries the fundamental analyst about this, he receives the reply, ‘That's true because even with all of our good (fundamental) analysis, if we don’t put a trend following component in it, it doesn't do very well.’”

And, there were many others along the lines of the two I just quoted. I think you get the gist. If one really understands that technicals will lead the fundamentals, what use would there be for something that is lagging? 

To use that which lags in order to make a decision to put your money to work is akin to using a several-month delayed price quote.

But, investors have been so indoctrinated to believe that one must invest based upon fundamentals that we have become no different than the masses who were so certain that the world was flat. In fact, R.N. Elliott noted “[i]n the dark ages, the world was supposed to be flat. We persist in perpetuating similar delusions.” 


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One has to ask if we really have a skewed view about the importance of fundamentals. I mean, if one recognizes that fundamentals lag technicals, yet place primacy upon fundamentals, are they not simply looking at the market with blinders on? Would you ever drive your car while looking out the back window? Just something to think about.

Price pattern sentiment and upcoming expectations

I have not provided you many articles of late regarding my directional bias on the metals. You see, the metals have been within a corrective structure, which has made both bulls and bears feel as though they have been right on different days over the last several months. But, I see nothing more than a consolidation, within a larger consolidation.

So, rather than bore you with the detail I provide to the subscribers of my market services (smile), I want to provide two pieces of information which should provide appropriate guidance to you over the coming months. 

First, as long as the VanEck Vectors Gold Miners ETF (GDX) remains over the 21 level, we can set up a higher-level consolidation in the coming months before we have another break out set up in the complex. However, should you see a break down of 21, we will not likely strike a long-term bottom until we reach at least the 17-19 region. 

Second, I will quote to you one of the things I have written to my members about Barrick Gold (ABX), right before we saw the downside in the metals this past week:

But, I want to highlight again the significant positive divergences evident on this daily chart. This is the stuff of which major bottoms are struck. So, while I can maintain an ideal wave structure still calling for a iii-iv-v to complete in the coming months, I want you to be well aware that when the upside finally gets ignited, the set up is quite similar to expect what we saw in early 2016. So, while my ideal structure still calls for more downside on this chart, as a long-term investor with a horizon of more than a few months, it would be hard to maintain a strong bearish bias when I see divergences like this.

So, yes, I still think it will take us several more months before we are able to resurrect a break-out set up in the complex. But, there are indications that the metals can see a strong rally take hold over the coming weeks. However, my expectation is that any rally seen will only be corrective in nature, and will be followed by an equally strong downside resolution before this larger corrective action has completed.

Moreover, there are still quite a few stocks within the list of miners we follow as part of the work we do for our EWT Miners Portfolio that can still see sizeable downside moves.

But, there are also quite a few miners that suggest they are getting quite close to long-term bottoms in this corrective pullback which began in August  2016. In fact, the set up I am now seeing is akin to what I was seeing in the fall 2015. And, we all know what happened once we turned the calendar into 2016.

See charts illustrating the wave counts on Silver, GDX, GLD & ABX.

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