Jul 2018 – Gold & Silver – There Is No ‘Hope’ In Trading, Just Probability 9th July 2018

In last week’s update, I posted the following and as noted, there is no ‘hope’ in financial markets, just probability:

” There has been few trades more frustrating for 2018 than metals. In fact, if you remember back at the end of 2015, the lows of $1,040 in Gold and $13.74 in silver in December was at the completion of a year long consolidative decline, which itself caused a great deal of frustration. So to put the current consolidation in perspective, we have traded sideways for approximately 6 months and yet investor sentiment seems just as fed up as they did in 2015. Believe me, I’m just as frustrated, arguably even more so. I take very seriously the responsibility I have to the hundreds of investors who follow my analysis with EBLN, which is why I have maintained the call I published back in January. I don’t control time and six months into the year, unless the market did something different, I had nothing to add until the market had either proven me right or wrong. It is difficult to look at the charts in a dispassionate way but you have to do this in order to gain the most honest perspective about the market, as ‘hope’ is one of the most destructive words in financial markets.”

Despite the rally off the lows over the past week, if articles published tell me anything is that not many believe this rally is sustainable. Indeed, a number of articles point out that ‘the market fundamentals don’t support the rally to continue. The reason I bring this up is because I remember reading articles posted during the 2011 rally in which it was stated that the fundamentals strongly support the expectations market participants had that we were ‘guaranteed’ to see gold exceed the $2,000 mark (which it did not). In fact, those fundamentals were quoted as still being there for most of the decline over the next 4 years.

Then, in 2015, the fundamentals were quoted as turned bearish and strongly supported the expectation that gold would drop below $1,000 and silver below $13.50. Yet, we were busy buying metals at that time and caught most of the major rally we were expecting at the time.

So when I read recent articles saying the fundamentals don’t support the current rally, and bearish investor sentiment corroborates this view, I have to smile. Ultimately, fundamentals follow market action, which itself is dictated by market sentiment. And since market sentiment is the overall ’emotional’ feel investors have towards the market, ask yourself this: if sentiment was extremely bullish with supportive fundamentals as we approached all time highs in 2011 but we didn’t get above $2000 for gold or $50 in silver, and then sentiment was bearish with fundamentals saying we would drop below $1,000 in gold but we rallied…are you finally seeing what I see?

Moving onto the charts, the question we are faced with now is if these markets have begun the larger [stage 3] rallies for which we have been waiting. One of the strongest clues so far is we have a clear 5-wave structure up off the lows struck in both Gold and Silver respectively. If the markets are going to give us stronger evidence that a bottom is in place, we need to see these structures develop in the coming weeks into much larger 5-wave structures off the lows.

As you can see in the Gold chart [below], we have what looks like a i-ii pattern set up off its low [$1,238]. If that low holds as support, I’d like to see this move higher develop into a larger 5-wave structure towards the $1,300 level but could see extensions towards $1,330.

Daily Gold Chart 09-July-2018

Looking at silver [chart below], we have a small but clear 5-wave pattern so far, which Id like to see take us through resistance at $16.50 and ideally extend back up to the $17 – $17.30 region [just shy of the ‘pivot zone’]. This would provide a much larger and stronger structure upon which to see a larger rally develop off the recent low.

Daily Silver Chart 09-July-2018

So, the larger picture tells me that a long-term bottom has been struck based upon the action seen in 2015 and 2016. And as said in previous updates, that does not change even though the price has been frustrating since the start of this year. Metal markets always tend to push to the limits before moving strongly, and as long as cited support regions hold, the next rally will likely be one that most will not expect and will not benefit from, despite the potential for it to be even stronger and larger than what we experienced in 2016. Right now, the micro patterns are again suggestive of a bullish setup.

There are no guarantees in life, we have had our projected lows recently hit and they have successfully held and should now if a major bottom is going to be seen in the near term. Those who have patiently waited to add to their portfolios, there are potential buy opportunities now. Those who are feeling bearish or whose ‘gut’ tells them the price is going lower, I’d ask you to remind yourself if those views caused you to miss out on the last time metals rallied.

Jonathan Salmon

Jonathan Salmon

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