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Technical Analysis of Precious Metals: Silver & Gold at Trader’s Narrative





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Bob Prechter on Silver & Gold
By Nico Issac

In case you hadn’t noticed: Over the past year of financial turmoil, the “safe haven” premium of precious metals has offered about as much support as a rubber ducky in a tsunami. Despite a string of powerful rallies, silver and gold remain well below their March 2008 peaks.

It goes without saying that the greatest opportunities in precious metals were not had by those who played the “disaster hedge” card; but rather by those who timed the trends as they developed, regardless of the fundamental backdrop.

Bob Prechter is in the latter group. Amidst the buzz and whirl of the most bullish backdrop in precious metals’ recent history, gold and silver prices soared to new, all-time highs and calls for a “New Gold Rush” and “$30 Silver” flooded the mainstream airwaves. Yet Bob alerted subscribers to an approaching top in the March 14, 2008 Elliott Wave Theorist.

“The wave count [in silver] is nearly satisfied, though ideally it should end after one more new high. If this analysis is accurate, and silver does peak and begin a bear market, gold is likely to go down with it.”

In the days that followed, prices in both metals fell off a cliff. In turn, Bob was asked to address his exceptional call for a turn down in a March 19, 2008 Bloomberg interview. Here are of excerpts from that conversation:

Bloomberg: “Why did you put out that call on Friday (March 14) about a peak in precious metals?”

Editor’s Note: You can download Bob Prechter’s 5-page report, Gold & Recessions, free from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Bob Prechter: “One of the reasons is that it seemed like an absolutely sure thing. We track several indicators of sentiment. One of them is the Daily Sentiment Index (DSI). That reached 98% bulls on a one-day basis going into this last high. We were tracking silver as well… as it is clearest in our minds. Now, at the time, we needed one more slightly new high. That happened Monday morning and silver dropped 15% in 48 hours. That’s a heck of a reversal and I think it’s real.”

“Real” indeed: From their March peaks, gold prices plummeted 34%, alongside a 60% sell-off in silver before hitting the breaks in October. Here, the October 2008 Elliott Wave Financial Forecast prepared for a corrective rebound and wrote:

“Silver traced out a five-wave decline from its March peak…Gold should also rally as silver pushes higher. Once silver’s rise is exhausted (initial target: $15.15), the larger downtrend should resume for both metals.”

silver futures elliott wave top call 2008

A powerful, four-month bounce ensued in both metals: Gold prices came within kissing distance of its March peak before turning down on February 20; silver followed suit — a fulfillment of this bearish, near-term insight presented in the February 23 Elliott Wave Theorist:

“Silver has been clear as a bell. Silver is due to turn back down, and gold, which is back at $1000/oz, is likely to follow.”

Since then, it’s been a steady march lower for both metals. Obviously, EWI’s forecasts do not always prove this accurate. Yet in this case the analysis speaks for itself.

gold futures elliott wave top call 2008

For more metals analysis from Bob Prechter, download Gold & Recessions a free 5-page report from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

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I had never heard of the Daily Sentiment Index (DSI). Anyone know anything about it? I do know that market timing newsletters tracked by Mark Hulbert that specialize in gold and gold stocks have turned very bullishness since mid February 2009. They upped their exposure from -16.5% (short) to +30.2% (long) within that short time span.

While Bob Prechter’s Elliott Wave Theorist is most commonly known for its bearish stance towards equities, their equity focused newsletter: the Elliott Wave Financial Forecaster is up 22.8% for the past 12 months, compared to -43.3% for the dividend reinvested Wilshire 5000 Index (according to the Hulbert Financial Digest). They seem to have the hot hand now. Check’em out.

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5 Responses to “Technical Analysis of Precious Metals: Silver & Gold”  

  1. 1 PEJ

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    Where is the “analysis”?
    this kind of posts don’t really find their place on this great blog :-(

  2. 2 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Pej, I usually rely on the K-ratio but in the past while haven’t had success with it. So I thought I’d share another view which has been profitable. Also, the DSI is a new (at least to me) sentiment indicator that I wanted to share and get info on. Have you used it? know anything about how it is calculated? I’d appreciate some info since there’s scarcely anything on it out there on the net.

  3. 3 Pej

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Hi Babak,

    My concern here was that I didn’t see any real analysis at all but more some sort of comments.

    And I must admit that I like to read about your various indicators and try to see for how close they match my own feelings — in which case I try to understand why I am WRONG.

    But I am more a contrarian than anything else (shorted the market big time before leaving to Spain) and I believe that an indicator which results of a 50% probability of getting something realised with no confidence interval at all is probably more dangerous than no indicator at all ;-)

  4. 4 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    No problem. If you’re interested in real analysis then I’d be happy to suggest some good services that I’ve mentioned on the blog before. For example, sentimentrader, Lowry, BCA, WSW, etc. But unlike my blog they’re not free ;-)

  5. 5 PEJ

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Hi Babak,
    Again, I am very happy reading your blogs and analysis that it contains. It’s just this particular post that I found to be a not so great compared to what I usually find here
    Otherwise, I wouldn’t even bother mentioning it. :-D

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