Tuesday, May 17, 2011

Ok, so now what?

Wow! What a run we've had since my last writing! Gold bottomed at 1309 precisely at it's 30 week MA (again) and proceeded to climb all the way to 1575, a gain of over 20% in 3 months! Silver rocketed from a low of 26 to nearly double that in the same time frame! Let's not get me started on some of the silver miners that gained over 100%!

Ok, so now what? Gold is currently trading $100 from it's new all time high, the HUI has retraced nearly 100% of everything it gained since the rally began, and the "silver bubble" has "officially" burst according to the "experts" (By "bubble" I mean delusions by the same folks who fueled the NASDAQ and housing market bubbles, and had never even heard the phrase before. By, "officially" I mean I am simply repeating what ever Mark Haines from CNBC says. You know, the guy who was quoted saying "Looks like time to sell your stocks" when the Dow hit 1300? The 65 year old, now-of-retirement-age guy who has worked as a financial news anchor his entire life but apparently has made so little money in the actual practice of it he still needs to have his day job? And by "experts" I of course mean the investment banking institutions personal silver mining analysts, despite the fact that the banking institutions didn't even have GOLD mining analysts until about 2008, but now they have silver mining analysts... well, had I suppose, they appeared for about 4 weeks somewhere around $32/oz, and have since been fired after the crash from $50.) But I digress...

I have often had arguments about chart formations that have formed in gold over the years with colleagues. Ultimately, it was a fruitless effort as in practice, one man's inverse head and shoulders can easily be interpreted as another's cup and handle. The psychology behind both of them are almost identical, and the projected break out targets are as well, so lets take a min to look at some of the past formations gold has given us.

Most recently we have the consolidation that took place for most of last year, before breaking out in the fall. As can be seen on the chart, that formation could easily be taken either way, but the end result was the same. Similarly, the 18 month consolidation we had from 2008-2009 (or as I like to call it, "the battle for $1000) can be seen as having an almost identical formation as the consolidation last year (just on a larger scale). Gold has shown us that it likes to do that. With that information now known, a similar formation should be looked for as we go into our typical "exciting" summer months. (You did catch the sarcasm there, right?) Combined with other truths gold has spoken to us in the course of it's bull run, we can almost expect such a formation to occur, bottom sometime in July at it's 30 week MA and then have a breakout to new highs come Sept. Mind you, this is not me trying to predict the future (besides my crystal ball is in the shop), this is a series of patterns gold has made, that may or may not pan out this time around but CERTAINLY MUST be something we keep our eyes peeled for in the coming months, especially after a slightly parabolic rise like gold just had. The same things occurred after the last 2 slightly parabolic rises we had; first hitting 1225, and on our first crack of 1000.

I have included the 30 year gold chart for 2 reasons: To show that these series of patterns have unfolded in gold in both the short term and very long term, and to move on the the second part of this article in which we will try and anticipate what the future may hold for silver. Below is the 34 year silver chart as well. Notice anything similar between it and gold? If silver were to consolidate from here in a similar manner as gold did for that 18 month period in 08-09 (the battle for 1000), the formation it would form would be virtually identical to that of gold's, just 2 years behind. This would provide a target upon a break of $50/oz of almost $100/oz! Just think of what this will mean for the silver miners who's costs average less than $10/oz! (And there you go, that's all you need to know to be a silver miner analyst. Now spruce up that resume of yours and apply for that job at Goldman.)

I don't believe in coincidences. I don't think it was a coincidence silver got back to its "Hunt brothers manipulation high". I don't believe it was a coincidence it's chart formation is beginning to unfold identically to gold's. I don't believe it's a coincidence these formations keep appearing. I DO believe this could leave us an opportunity to know the future for silver by looking at gold, and I DO believe gold will most likely fall into it's familiar formations again and again as the bull market continues. I DO believe if this is the case, it presents us with great opportunity. I'm not a psychic (well, on weekends.). I prefer to let the market show me what it wants to do, but if your not looking for it, you may never see it. Let's keep our eyes peeled for what comes of this.