Sentiment Speaks: Silver May Explode
Approximately 12 years ago, I wrote my first public market prognostication and it was focused on gold. At the time, gold was enjoying a parabolic rally, and the discussion amongst the general public was how far past the $2,000 mark gold was going to strike during that rally.
So, on Aug. 11, 2011, I concluded my first gold article on Seeking Alpha as follows:
"Again, since we are most probably in the final stages of this parabolic fifth wave "blow-off-top," I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time."
Needless to say, my first market prognostication was not met with tremendous support. These are a sample of the comments I received from Seeking Alpha readers when I was calling for a metals market top:
"With all due respect Avi, you plainly do NOT understand the gold market."
"Your TA is useless. You don't understand the fundamentals because you only look to the past. Gold bulls are forward thinking. The times they are a changing..."
"The problem is that TA is like driving a car by only looking in the rear view mirror... There is no foresight involved; it's all based on past performance. The future of the fundamentals is what you fail to grasp."
"There is no way you can understand what is going on in gold by doing technical analysis. Gold is driven by fundamentals."
"Technical analyses is all well and good, but you cannot apply it to the PM sector which has been artificially manipulated and suppressed for years."
Yet, as we now know, gold struck a top within $6 of the top for which I was calling.
What many may have seen as either ignorance or hubris, I even provided my downside target even before gold topped, wherein I explained my expectation for gold to drop back down to the $1,000 region.
"Based upon the Elliott Wave Principle, I would expect a very large pullback. In fact, the target for such a pullback will probably be a minimum low of $1,400, it could fall as low as $1,000, or even as low as $700. It will depend upon how the decline takes form. But those are very viable targets for gold on the downside."
And, the comments regarding my views were basically the same as above, so, I will just note one of the more "reasonable" comments:
"There is no way to rationalize $700 gold with 50% debasement of currency expected over the next 5 years as US debt grows to $21 trillion from $14. It makes no sense to my feeble mind. I vote for $3000 vs. $1900 today. That makes sense to my mind."
As you can see, it was quite clear at the time that the "fundamentals" were keeping most metals bulls looking to the long side. And, amazingly, those same fundamentals kept the metals bulls looking to the long side of the market during the entire decline.
But what was truly amazing was that as gold was approaching its long-term low struck at the end of 2015, almost the entire market turned bearish and was again "certain" that it would continue in its downside trajectory (just as strongly as they were certain we would eclipse $2,000 in 2011), with most now turning from bullish to predicting a drop below $1,000.
Well, just like everyone was uber-bullish at the highs when we expected a major top, we turned bullish when everyone turned uber-bearish. On Dec. 30, 2015, I urged investors to be moving back into the metals complex as we were looking for a long-term bottom to be struck imminently due to the significant bearishness evident in the market:
"As we move into 2016, I believe there is a greater than 80% probability that we finally see a long-term bottom formed in the metals and miners and the long term bull market resumes. Those who followed our advice in 2011, and moved out of this market for the correction we expected, are now moving back into this market as we approach the long term bottom. In 2011, before gold even topped, we set our ideal target for this correction in the $700-$1,000 region in gold. We are now reaching our ideal target region, and the pattern we have developed over the last four years is just about complete... For those interested in my advice, I would highly suggest you start moving back into this market with your long term money..."
In fact, back in September 2015, and when the metals mining companies were absolutely hated by the investor community, I rolled out a service on ElliottWaveTrader specifically to focus on the mining industry. We began urging our clients to buy mining stocks during the last quarter of 2015. In fact, I bought stocks such as Newmont Mining (NEM) in the $15-17 region at the time. And, NEM was my largest holding in the complex since that time.
Now, fast-forward to 2022, and gold had been stuck in a correction since a local top was struck back in August 2020. Yet, there were pockets within the market which still rallied into 2022.
An example of such outperformance in 2022 included NEM, which went on to strike higher highs in April 2022. Yet, when NEM struck the 84-85 region, I outlined to the members of ElliottWaveTrader that, for the first time since I bought NEM in 2015, I was selling almost my entire holdings in the company. You see, I set a target of 82-89 when NEM was hovering in the 28 region. And, when we moved into my target region, I stuck with my plan and sold my largest holding in the complex. Since that time, NEM dropped 57% off its highs.
So, back in January, I provided my latest assessment of the gold market, with an expectation for gold to rally to the $2,428 region in this current move off the early November low. I also noted that we can certainly even blow through that, depending upon the extensions we see in the upcoming rally, but that target was a solid one for now. Clearly, I will reassess the target once the next bullish phase begins in earnest.
And, then in April, I outlined my expectation for the metals market to begin its next rally to the $2,200-plus region. My expectation was that a break-out through $2,075 would trigger that next bigger move. Yet, while the market spiked to $2,085 in early May, I warned members of ElliottWaveTrader that the structure of that move did not look like it was starting that rally to $2,200 just yet, and I expected more of a pullback. So, while the market did spike through $2,075, it clearly was not able to sustain that rally, as we expected, and it immediately spiked back down below.
At this time, I'm still expecting a fast and strong rally to $2,200-plus in the coming months. And a break-out over $2,085 will likely now be the trigger.
But silver is providing to us a relatively low risk buying opportunity as it's setting up to see a very strong upside follow through when this pullback completes.
To keep it very simple, we have been outlining to the members our expectation for the pullback we're now seeing in silver, and it's now striking our general target region for this expected pullback. As long as silver holds over $22.50, I'm expecting this pullback to complete over the coming week or two and set us up for a strong rally which should be pointing us north of 27 rather quickly.