Decision Time For Silver & Gold

Last weekend, I noted that you may think of me as stubborn, crazy or both for maintaining the perspective that a bounce was going to be seen, even though most of the market was expecting an imminent break down in the metals. But, the fractals and technicals were telling me that I really should maintain that stance despite what the rest of the world expected.

And, now that we got our bounce, our question is if the market begins its next treacherous drop this coming week, which takes gold below its 2013 lows?

While we have enough waves in place to consider this bounce as completed, I am uncertain that we have indeed completed this bounce based upon the room still overhead in the technicals on our daily charts, as well as lack of clear imminent downside pattern set up pointing to the fact we are about to head to those lower lows. In fact, the only downside set up to which I can point in SPDR Gold Trust (ARCA:GLD) is a leading diagonal, and we know that I do not like those as high probability trading cues. However, silver does present a more clear micro 5 wave downside structure from last week’s high. (But micro structures in silver are not the most reliable patterns, and I would have felt more comfortable about a decline set up if we had a similar set up in GLD as well).

So, without a solid downside pattern in place in GLD, it is hard to be certain about downside follow through. If we are indeed heading to those lower lows, it should begin this upcoming week, and silver should not exceed its previous week’s high of 17.72. And, I would look for a break down below 115.50 in GLD to confirm that we are likely heading down to break the 2013 lows.

Alternatively, as I have said so many times over the last few months, GLD has still retained the potential to rally up to the 130-133 region in a larger degree e-wave, especially since it still has not broken down below the 2013 lows. Although this is a much lower likelihood as long as we remain below 121.50GLD, should we strongly break out over that level, with follow through over 123, then that is the perspective I will be forced to adopt, which will push out the final lows for the metals into 2015.

While I do not comment often about GDX, there was a very important occurrence this past week in that chart. Many analysts and traders have taken the position that Market Vectors Gold Miners (ARCA:GDX) is in an exceptionally bullish posture, as a 1-2 set up from the lows of 2013. I have noted many times that I feel that structure was relatively too large to view in such a way, in the same way that I dismissed the GLD pattern being set up as a bullish 1-2. This past week, GDX broke slightly below its 2013 lows, thereby invalidating any potential for the 1-2 structure, as wave 2 can never retrace more than all of wave 1. This provides me further confirmation that much lower lows will likely be seen in most miners as well as the metals themselves.

So, this leaves me with the expectation that the upcoming week may likely be the make-it-or-break it time for the metals to make lower lows in 2014. Based upon our silver chart, it suggests that the break down to lower lows should begin this coming week. However, should last week’s high in silver be taken out early this coming week, it would place serious questions in my mind as to whether we are heading to lower lows in 2014 or if we may be delayed until 2015.