Wednesday, January 06, 2010

Silver and Gold Prices Have Probably Reached the Maximum Low of an A-B-C Correction

Gold Price Close Today : 1135.90
Change: 17.80 or 1.6%

Silver Price Close Today : 18.163
Change: 38.2 cents or 2.1%

Platinum Price Close Today: 1557.30
Change: 27.00 or 1.8%

Palladium Price Close Today: 428.55
Change: 4.00 or 0.9%

Gold Silver Ratio Today: 62.54
Change: -0.342 or -0.5%

Dow Industrial: 10,573.68
Change: 1.66 or 0.0%

Both SILVER and GOLD PRICES reached their 38.2% correction level (Nov. 2008 - Dec. 2009 run) and 25% correction (April 2009 - Dec 2009 for the GOLD PRICE and July 2009- Dec. 2009 for the SILVER PRICE), at about $1,075 and about $16.80. Now they have bounced up off those lows, with gold closing today at $1,135.90 (up 17.80) on Comex and silver rising 38.2 to $18.163.

Why these crazy numbers, 38.2% & 25%? Because those are frequently-seen corrections. Also, corrections often take an A-B-C zigzag form. The market drops in the first wave down to a bottom at A, rises up to a top at B, and then drops again once more to a final bottom at C. It may be logical, but is not necessarily so, that the top of B is lower than the top that sparked the correction, or that the bottom of C is lower than A. Some B waves can become so frenzied with enthusiasm that they will fool you into believing that a new advance has begun; B waves may even exceed the last peak. And the C wave may or may not fall to a lower low than the A wave's bottom.

What I have observed in this bull market is that the bottom of a correction usually comes within a month of its beginning, and the C wave doesn't go lower than the A wave. So are we looking for a lower low than $1,075 and $16.70? I am not. I believe we have already seen the correction lows. If I am wrong and these lows do not hold, then obviously a greater correction will follow, lasting another six months or more and dragging gold down to $985. What trigger will tell you that I am wrong and that lower prices are coming? A gold Comex close below $1,075. How will you know that no further correction is coming, but rather higher prices? a close higher by 3% than the 3 Dec high close, that is, a close over $1,254.00.

But don't let all this confuse you. Bottom line is that silver and gold are in a bull market, a primary uptrend lasting another 5-10 years, so even if your timing is poor, the uptrend will bail out your mistake. For example, when the gold price first climbed to $340, I was all vexed about whether it would correct to $320 or $290. Today all that worry looks silly, because the primary uptrend has bailed out those $340 and $320 purchases long ago.

I'll summarize: silver and gold prices have probably reached the maximum low of an A-B-C correction. From here they will rise to a B peak, then fall again to finish the correction at C. That low probably won't fall lower than what we have already seen; it might reach $1,100 at most. I would buy silver and gold from here, or wait to see how (what appears to be a B wave) plays out.

The US DOLLAR INDEX is correcting its attempt to break through 78. It is probably still rallying, but so weakly that you have to look close to see it. Closed today down 16.9 bps at 77.45.

STOCKS are wallowing ahead, having edged into new highs for the move, but not by much. Dow today closed 10,573.68 (up 1.66) and S&P 1,137.14, up 0.62. Stay away from stocks, even as the Wall Street sirens' songs wax louder and more insistent.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

© 2009, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.