Bernanke: An Early Christmas Gift to Gold, Gold Shares, and Silver

By: Robert McHugh | Sun, Nov 20, 2005
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Gold is thrilled with this week's Senate Banking Committee confirmation of Ben Bernanke for the Fed Chair, and the concurrent Fed decision to hide the M-3 figures, as it likely means a ton of fiat money will continue to be created. So much money, that the Fed won't want anyone tracking it anymore. Gold was also thrilled with Russia's announcement it will double its gold reserves. But this was all predictable, simply by looking at the Bullish charts for the precious yellow metal and its cousin Silver, six months ago. We knew from the charts that money supply around the globe was going hyper, and that some astute government would increase its reserves. Yes, Gold is happy, hitting $489 Friday, a mere $11 from our minimum price objective of $500.

Gold broke out from its nine month Bullish Symmetrical Triangle this past August, and this past week gave a no-doubt-about-it move confirming it means business to the upside. Why was this week's move so important? Because it gives us a five-wave impulse higher, as Gold reached a new reaction high, exceeding its previous high of October 12th. Gold's 4 percent rally this week is a small degree wave {3} impulse, meaning there is at least another same degree wave {5} higher coming. That could be the impulse that takes Gold over $500, a level many scoffed at as recently as 6 months ago. Further, our labeling suggests there are three higher degree waves that need further impulse moves up to complete primary degree wave (1), waves v of 5 of 5. After the coming pinnacle in Gold (that looks like it could occur well above $500 since we are likely to achieve $500 with a small degree thrust), will come a multi-month correction. But Gold is in a long-term Bullish trend, so after primary wave (2) down completes, there will be a huge wave (3) up ready to take Gold into 4 digits.

The next chart shows Silver tracking higher. Silver completed Minuette degree wave i up on October 11th, at 7.91, then traced out an Elliott Wave a-b-c, 3-3-5 Flat for corrective wave ii down, bottoming on November 1st. Silver has since rallied in a small degree Micro wave 1 up, 2 down, with 3 up of iii up in process. It closed Friday decisively above its 50 day moving average, which is Bullish. Silver should be heading above 9.00, as an upside measure is available from the widest portion of the Symmetrical Triangle, by adding that distance to the point of the breakout.

Short-term, the HUI is progressing as expected, having bottomed at its wave iv at the bottom boundary of the rising trend-channel on October 20th at 214.30. It then began the first leg of wave v up, finishing Micro wave 1 up on October 26th at 234.44. Wave 2 down was stopped at that same bottom boundary of the rising trend-channel on Friday the 28th at 219.31. Since then, wave 3 up has progressed along its trek toward 275, the upside target for the Bullish Head & Shoulders bottom. That target may not be hit by the time wave 1 up tops, but rather may have to wait for wave 3 up.

The HUI Amex Gold Bugs Index remains in a Primary degree wave (3) up. Wave threes are usually the most dramatic and progressive of all waves. This means we can expect the Gold stocks to rise for a long time to come, and substantially. But all large moves have their share of corrections, do not move straight up. Still, it is a long-term Bull market in the Gold stocks. Primary degree wave (2) down corrected the wave (1) rally from 35.31 on November 16th, 2000 to 258.02 on January 6th, 2004, by declining within 7 points of a .382 retrace of (1), bottoming at 165.71 back on May 16th, 2005. Oftentimes wave threes are the extended wave in a five wave sequence. A decent estimate of wave threes is that they can be about 1.618 the length of wave (1)s. Primary wave (1) up was 222 points. If wave (3) decides to equal 1.618 times the length of wave (1), it means the HUI is rising to at least 526 over the next few years, as wave (3) would cover 360 points from the May 2005 165 low. This is a ballpark, but you get the idea.

Our proprietary HUI Amex Gold Bugs Index key trend-finder indicators identified the latest up trend, which is the whole idea of these signals. Since both our HUI 30 day Stochastic and Purchasing Power Indicator TM indicators agreed on a "buy" signal on November 2nd, the HUI rose 18.87 points, or 8.23 percent.

HUI volume came in Friday at its 10 day moving average on a 1.49 decline, with downside volume at 66.8 percent and declining issues at 68 percent. Volume fell to 77 percent of its previous 3 day average. Since most issues move in tandem, the mixed picture here on a down day is Bullish.

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"For all have sinned and fall short of the glory of God."
Romans 3:23


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 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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