Gold's March Toward $500: Will Silver Follow?

By: Robert McHugh | Sun, Sep 25, 2005
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Gold's March to $500 continues, intact, as the Elliott Wave count shown below suggests there are plenty more impulse waves left to lift the precious metal into orbit. Think of these coming waves as booster rockets, and the small corrections as the triggers. Since completing its Minor degree wave 4 bottom on July15th, 2005 at 418.25, Gold has blasted $57.25, or 13.7 percent, in just about two months. The move was jettisoned from a Symmetrical Triangle pattern suggesting for months that prices would resolve sharply to the upside. This is all part of a final phase, wave 5 of an Intermediate degree wave 5 of primary degree wave (1), the first leg north of an eventual move that takes Gold well above $1,000. The current wave (1) peak should occur around the $500 area - plus or minus, to be followed by a 6 to 12 month corrective wave (2) lower. If (1) tops at $500, then a corrective wave (2) decline that covers .382 of (1) would likely drop Gold back to a buying opportunity $400 +/- level. Then wave (3) will send Gold to an economic-debacle protection level, well above $1,000. It will be fueled by either some central bank backing its currency with the metal, or a buying panic from the general public - or both.

Gold's recent Bull run was confirmed when the 50 week moving average crossed above the 200 week, back in early 2002. Previously, the former decline was confirmed by a cross under by these same two moving averages, back in 1997. No signs of a cross under coming any time soon.

Silver reached resistance at the downward sloping upper trend-line of the Symmetrical Triangle pattern this week, hitting 7.47 on Thursday, then correcting. We continue to wait for Silver to break out decisively above the upper trend-line. Once it does, it should have an all-clear signal to head for 9.00. The one concern here is that Gold busted out from the pattern a while ago and Silver is dragging its feet. While these Symmetrical Triangle patterns are reliable, there is an important message in the Gold:Silver Ratio. Since Silver has an industrial purpose in addition to numismatic, if it smells a recession - or some sort of economic or political problem ahead - then this ratio will rise above 70.00 To do so would require Gold to outperform Silver - which is exactly what it is doing right now. The ratio currently stands at 63.58, about where it was last week, but is up sharply from its 51.07 reading back in April 2004.


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"God, after He spoke long ago to the fathers
in the prophets in many portions and in many ways,
in these last days has spoken to us in His Son, whom He appointed
heir of all things, through whom also He made the world.
And He is the radiance of His glory and the exact representation
of His nature, and upholds all things by the word of His power.
When He had made purification of sins,
He sat down at the right hand of the Majesty on high;
having become as much better than the angels,
as He has inherited a more excellent name than they."

Hebrews 1: 1-4


 

Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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