Inflation Assets Hit New All-Time Highs

By: Robert McHugh | Mon, Feb 25, 2008
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Inflation Assets Hit New All-Time Highs - Robert McHugh, Ph.D.

This week saw both Gold and Oil hit new all-time highs. Gold rose to $958.40 on Thursday, February 21st. Oil rose to $100.86 on Wednesday, February 20th. Silver also busted out higher, hitting $18.19 Friday, February 22nd. In the face of deflating housing prices, stock prices, and high risk credit assets, gold, silver, and oil are flying high. What is going on?

Clearly these precious metal and commodity inflation assets are discounting future inflation. They are suggesting Central Banks worldwide will be tossing monetary inflation against this threatening economic slowdown. With the entire credit function at risk, liquidity and bailouts will occur as necessary to ward off threat of a depression, and minimize the damage from the current recession. At least that is what gold, silver and oil are saying at the moment. These assets are telling us that the price for staving off economic disaster will be another huge wave of the rising cost of living.

We now believe it could hit 1,300 in 2009. Before that, there will be corrections, buying opportunities. Gold recently corrected, but is rising again.

Gold's Minor degree wave 4 was a Symmetrical Triangle, a consolidation pattern of the Minor degree wave 3 rally that started back in 2001 and extended into the May 12th, 2006 top. Waves a through e within wave 4 are complete. A break above $730 confirmed that the triangle is complete, and wave 5 up is underway. Wave fives typically extend with precious metals, so for wave 5, $1,000 is likely for Gold by mid-2008. Minuette wave i up of 5 up has not yet completed. Gold revealed itself to be forming a Symmetrical Wave 4 pattern, a five wave pattern of three waves each, that started at the $848 top on November 7th. This pattern looks complete, is textbook, is Micro wave 4, and Gold has predictably broken out higher from this pattern, wave 5 of i up. See chart of this Symmetrical Triangle below.

Silver's performance is lagging Gold's since Silver has industrial use, and the stock market's summer drop is forecasting a slowing economy, which suggests industrial demand for silver may slow. However, Silver also has monetary value, so its downside should be limited. Silver finished its Minor degree wave 1 up. Wave 2-down formed an a-b-c flat, with a truncated wave c-down. A decisive breakout above 15 confirms that wave 3 up of 5 up is underway. Waves i up and ii down finished, and wave iii up of 3 of 5 has started, off to the races toward $21, hitting 18.19 Friday. Wave fives typically extend in precious metals, a solid reason Silver should be headed for $21.

Below, we present the long-term Elliott Wave labeling for Oil (West Texas Intermediate Crude). It finished a huge Intermediate degree wave 3 bull market in July, 2006. The decline since was corrective Intermediate wave 4 down. Wave 4 down is finished, and wave 5 up has started, with oil rising 85 percent over the past year. Within wave 5 up, waves i through iv of 1 up look complete, with wave v up in process. Oil hit an all-time high this week, $100.86 a barrel, as minor degree wave 3 up gets started. We've predicted back in January 2007 when oil hit the low 50's that "This huge intermediate degree wave 5 up should take oil above $80 a barrel this year." Wave 5's typically extend in commodities. We now expect $130 a barrel oil by late 2008/2009.

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For I have come down from heaven,
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John 6: 35, 38, 40



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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