Money and Metals

As promised, here is some commentary from Elliott Waves short term update Wednesday night. When it comes out later today, I will post the Friday update for comparison. "Gold declined initially from its $575.80 high to $534.50 (basis spot). A failed rally attempt carried prices to a lower high of $571.25 on March 3. The pattern of the advance unfolded as an 'A-B-C,' a countertrend move, while investor optimism remained near previous extremes; the 10-day Daily Sentiment Index hit 84.3%."

"Gold refused to join silver at a new recovery high (above the February 2 high), creating an inter-market bearish non-confirmation between the two metals, and daily momentum remained weak, completing a pattern of three lower highs since December (see chart). Since October 2005 when gold was at $480, large speculators (hedge funds), which had provided the 'fuel' for gold’s speculative rise up until that point, started scaling back their net-long positions."

"The final rise from late November 2005 when gold was at $490, has been almost entirely driven by small traders, which is 'the public,' typically the ones 'holding the bag' at significant trend changes. Finally, and most importantly, the Elliott wave pattern from August 1999 is complete at the early February high, having traced out an impulse wave. All the subdivisions are in place at the top, which means that at the very least, an 'A-B-C' decline is underway that should correct the entire rise from the 1999 low. This is the recipe for a COLLAPSE in gold prices."

"The first target in the decline is the midline of the parallel trendchannel. Depending upon when it is reached, it crosses just above $500. There is more bearish potential once the area surrounding the midline is breached. The .382 retracement of the rise from the August 1999 low is $452 (basis spot)."

"Let’s wrap up gold tonight by coming back to the trees (the near term) for a second. It’s possible to consider the decline from the $572.50 high of March 2, basis the April contract, to today’s $543.50 low (basis April) as a complete (or nearly so) five-wave decline. This would be wave one down of a larger five-wave decline. So the short-term subdivisions allow for a bounce back toward $555-$560 in wave two, prior to more selling pressure. I am not certain this bounce will develop, prices may extend lower immediately, based on the larger position within the pattern. Bu if a bounce does develop, we would view it as a prime opportunity to add to or to establish a bearish stance in gold, using the March 2 high as the 'key level' in order to keep risk to a minimum."

"May Silver has topped. The decline that started at Friday’s $10.330 high is likely to be even sharper than gold’s for the simple reason that silver sports a higher 'beta' relative to gold. The first target surrounds the $8.950 level, which is the .382 retracement of the entire rise from the August 30, 2005 low and (arguably) the bottom of a previous fourth wave. Near term, prices are either ending the fifth wave down of the initial impulse wave, or are in a third wave, via the close-only chart. It’s not clear at the moment. We would use any periods of near-term rally to position for additional selling pressure toward the first downside target cited above."