Will Gold Ever Break Down?

Yes, silver has finally done it. It has broken strongly below support, and if I was just looking at silver alone, I would assume that we are on our way to a final bottom in metals in the October-November time frame, with an ideal timing of Thanksgiving.

However, silver does not live in a vacuum, and neither do I. So, I clearly have to view gold’s action this past week as well, and it does make me scratch my head a bit in wonderment. Even though silver has taken out the support which would normally signal that we are finally on our last run to the lows of the 3+ year correction, the SPDR Gold Trust (ARCA:GLD) has still stubbornly maintained over 114.46. That is, so far. As we closed the trading day on Friday, we had a micro 1-2, i-ii set up in gold to potentially even have it gap down below that support early this coming week, should it decide to act upon this set up.

Now, silver, too, seems to have a set up for lower levels into the coming week, with a minimum target of 17.75, but with an ideal target of 17.20. I would question the potential for this set up if silver was to move back over the 18.15 level before these lower levels were struck. The next drop would then complete wave (v) of 3 of III in this final 5th wave, assuming both metals were able to see these declines into next week.

Assuming we see this decline next week, then we still have wave 4 and 5 of III to complete, likely into the middle of October, followed by waves IV and V, which can potentially take us into the Thanksgiving time period until they complete.

Allow me to now take a step back and look at the bigger picture on the daily charts for both gold and silver. First, if one were to look for another recent time period which exhibited an RSI as oversold as the one we have right now, we would have to go back to the April 2013 time period, when silver was bottoming in its 3 of iii of that particular pattern. Well, our count right now has silver potentially bottoming in a 3 of iii as well, which means that if silver were to play out a similar pattern, it still needs a 5 of iii, as well as waves iv and v to complete this current downtrend. And, interestingly, it took silver just about 2 more months to complete those waves, which is the estimated time I am thinking it will take us this time as well.

The daily chart in gold is equally bearish, and has no indications of the positive divergences one would normally see at a market bottom of sorts. But, while we have no indications of a bottom in place, until the 114.46 level is taken out, the potential still exits that gold may attempt the rally back to the 130 region for a larger degree e-wave. However, I must say that, based upon the recent action in silver and the technicals on gold, it is much less likely that this scenario will play out to those higher levels before a lower low is seen in gold. But, should we see the gold move back over the 119.50 region, it still leaves the door open for that potential.

The one thing that still bothers me is the larger degree 4th wave I am expecting in the DXY. I still can’t help but consider that a rally in metals can still be seen while the DXY develops that larger degree 4thwave pullback. Yet, with the technical damage we have recently seen in silver, it makes it much harder to believe we will see such a rally in silver. So, until gold breaks down below the 114.46 level, I have to keep this potential for the gold in the back of my mind, while bringing it to the forefront of my mind should it climb back over 119.50. And, yes, it is even “possible” that silver sees a 4th wave which keeps it below resistance, even though gold goes up to complete a larger degree e-wave – however unlikely it may seem at this time. Until gold breaks 114.46, I am not discounting any possibilities.

In summary, as long as silver maintains below the 18.15 level early next week, I am going to expect further extensions down to 17.57 or as deep as 17.20 to complete wave 3 of iii. From there, I will expect a bounce for wave 4 of iii that should maintain below 18.75 at all times, and ideally below 18.15. This should set us up for a target of 16.25-16.65 to complete all of wave iii down sometime in mid-October, if we maintain the current larger channel.

As for gold, I want to see us maintaining below 118 this coming week, which should then project us below the 2013 lows in a micro 5 wave structure which is currently set up as of the close of Friday. However, should we take out 119.50, then I will have to reconsider the larger 4th wave triangle in the alternative count.

As for my long time targets down in gold, as you probably remember, I am ideally looking for the long term bottom in the 95-105 region. And, if there is a significant overreaction to breaking the 2013 support level, there is an outside potential we can see as low as the 75 region. In silver, my ideal target region resides between 15-16.50, with the overreaction price down to 13.50. But, I highly doubt that overreaction price region will be seen for very long, should we even get there. And, remember, these are not my “feelings” about to where I see the metals headed, but, rather, my calculations.