Factors Supporting One More Quick Low For Gold Prices

In our August 12th market update, we noted the slowing momentum in precious metals as the gold miners made a marginal high without metals. It appeared distribution was taking place throughout the mining sector into that August high and we subsequently issued a sell alert. Since then we have been waiting for gold prices to enter our Buy Zones, they have. Now we are looking for basing activity and confirmation of an intermediate-term low.

Technically speaking, the charts support prices dropping one-more-time before making a cyclical low. This article will explore the two main reasons supporting our view and consequently why I’m reluctant to call the end to this correction. We also include a brief snapshot of what we will be watching for in the coming weeks.

Factor One: The Yen

The Yen has traded hand-in-hand with gold prices for several years now. The Yen rallied from 80 to 100 in just 9-months without a meaningful correction. Prices are finally correcting but have further to drop, in our opinion. At a minimum price should test the 200-day MA but could readily test support around the 90 level.

Yen Chart

Yen prices are bouncing with gold. The 20/50 day EMA's are near a bearish crossover; I expect that area to contain price during this temporary bounce higher.

Note: I can't confidently call a bottom in gold until the Yen has satisfied the requirements for an intermediate-term correction. Historically, the Yen drops to at least the 50-week EMA before finding a cyclical bottom (currently at 92.82).

Factor Two: An Incomplete Price Structure

The corrective structure into the Early October low looks incomplete. In Elliott Wave terms, the sharp move lower into the October 7th low should represent the 3rd wave of the ending C-wave. The 3rd wave is the most powerful and explosive of the impulse waves and therefore easy to identify. We should be near completion of the 4th corrective wave, and the 5th wave lower should complete the larger ABC corrective pattern. The 5th wave should form with a positive divergence in the indicators.

Silver Chart

Elliott Wave analysis is entirely different than the common cycle lows I usually label. I put an Elliott Wave count to the silver chart below illustrating the need for one-more-low to complete the C-wave structure.

Miners (GDX)

The correction lower in miners also looks unfinished. If we are in a 4th wave correction, prices should top around now. If prices continue to rally, reaching $25.86 or higher, the 5th wave drop will be off the table. In that case, we will look at entering positions during the next pullback.

Note: The first six trading days in November include a Fed meeting, the October non-farm payrolls, and the results of a controversial Presidential election. A critical time for precious metals indeed, and conceivably a good time for a potential bottom. We will be looking at this timing window if prices begin moving lower into a 5th wave.

Conclusion

We are at an inflection point in precious metals and miners. Our prevailing view supports one-more-low before a significant bottom can form. The Japanese Yen and Elliott Wave theory disclose why I'm slow to call an end to this correction. Nevertheless, if our deductions prove incorrect, we will have another opportunity to deploy capital during the first cycle pullback of the larger intermediate degree rally.

We think it best to exercise patience and let the market prove itself before committing to an outcome. The next few trading days are critical to our market forecast. If precious metals and miners are going to drop into early November, they should begin showing signs of rolling over forthwith.

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