THE GOLD AND SILVER SMACK-DOWN COMETH / SEEKING ALPHA

The Gold And Silver Smack-Down Cometh

Feb. 23, 2014 2:45 AM ET

by: Avi Gilburt

The more things change, the more they stay the same. No matter which direction the metals are currently moving, that is the direction in which most market participants believe it will continue. This is linear analysis/thinking at its best.

But, if you remember, when the market was heading down to the 115 region in GLD, everyone was overloading the short boat with imminent targets of 100 or below. While that is still my ultimate target region for GLD, I did not think we were getting to it just yet. So, once we got to the 115 level in GLD, our analysis was cautioning for a potential bottoming and reversal, which was why we exited our shorts at that time and started looking up. Our only question was just how high that expected reversal was going to take us.

Last weekend, I noted a "fundamental" reason as to why metals have been on the rise. Now, I have to warn you that most of the husbands have smoothed things over with their wives. They procured the needed gold and silver jewelry for their wives, their wives are happy, and life now goes on. After all, a happy wife leads to a happy life.

But, this is now going to leave the metals demand quite waning. If there is no more marital strife, where is the demand for metals going to come from? China, India? Nah. They have not helped for the last three years.

Rather, these "dog-house-husbands" have been the primary driver of this market of late. So, do we see another major snow storm on the horizon? Maybe we will need to engage the services of a weatherman to determine if the metals will continue higher?

Yet, even though the demand will now drop off due to marital bliss being restored, I can already see the next major demand phase for the metals coming down the pike in 9 months. Yes, you guessed it: Cabin fever will lead to a baby boom in nine months. And with that baby boom, demand for jewelry will once again soar, as these same husbands will be buying jewelry for their wives as gifts after the birth of their newly born children.

So, between now and then, I foresee some more buying from the laggard "dog-house-husbands," who will finally give in and buy that jewelry "make-up" present. But, they were the minority laggards, and will not be able to push the metals too much higher. The question now is how many of them are there out there and how high will they be able to push the metals with their "late" demand.

On another note, in my perusal of the recent articles on metals, one is highlighting Rick Rule's call for the bottom - yet again (I think this makes for a 23rd bottom call), and another exclaims that the bear market in metals is over. Another claims that buying of gold by the Chinese is bad for gold prices, but almost all others are convinced that the metals have finally broken out, and the bulls are now running.

What I glean from this is that metals enthusiasts and analysts alike always claim the bear market is over just because they see prices rising, along with any fundamental reason to support it. But, there has always been a fundamental reason to support any rise in the price of the metal for the last three years, yet, it surely has not helped any of them see the impending deeper drop which was set up by that rise. So, it seems that anyone relying upon fundamental reasoning has not been able to differentiate between a price rise that is supported by evidence of a real bull run, and one that is simply a corrective rally.

Well, in my humble opinion, this is a corrective rally, and I am now questioning just how high it will run. Of course, I can always be wrong, and a strong move through the 26/27 resistance region in silver will tell me I am wrong. But, that is not my primary expectation at this time. In fact, I am now questioning whether we will even see the 26 region in the futures.

While I will not go into the details of what I see and why I view it as such, I will say that the structure of the rise, thus far, has me quite concerned that this move higher can end much sooner than many expect. So, I have suggested to my subscribers at elliottwavetrader.net to move stops up on their long positions this past week, and we will be looking to take profits on most of our positions on the next move up in the metals. As for now, the targets I have for the next move is within the 22.50-23.25 region in silver futures, and the 128.75-131.50 region in GLD. And, the specific level at which I will exit will depend on the structure of the move into that target region.

Of course, the metals can still move towards the higher targets that I initially had wanted to see, but due to the structure I am seeing, I think it will be prudent to move to cash in those shorter term long positions (not the LEAPS), and see if we get another consolidation/pullback before re-entering for those higher targets. But, something tells me that those higher targets may not be seen until after we see a lower low.
And, I will reiterate once again that, even though so many are convinced that the bear market is over, I still maintain the perspective I provided you as we came into 2014:

"At the same time that CBNC is trashing metals, there is an ever increasing group of investors and analysts that are confident that the bottom for the metals is neigh upon us. I am seeing more and more articles coming out this past week that the lows for the metals are in, and 2014 is going to be the "YEAR OF THE METAL BULL." Personally, I think that is a lot of "bull." I see this as the YEAR OF THE WHIPSAW or the YEAR THE BULLS DIE.

Why do I say that? Well, one way or another, the metals are going to hit lower levels in 2014. Currently, I am still tracking the set ups which can take us to the 136-140 region in GLD before we target the 100 region, which I have been warning about for weeks now.

But, remember, even if we do get that break out towards the 136 region, it is just a set up for a bigger short trade to the 100 region. And, yes, that is why I think this will be the YEAR THE BULLS DIE. This set up will likely put hope back into the metal bugs and bulls (and even the CNBC pundits, who will likely become bullish near the top) only to have them wiped out, and potentially capitulate in 2014. And, that will finally set us up for the real rally we all want to see." Seeking Alpha, January 6, 2014