Precious Metals Market Timing
Looking for Clues

Ron Rosen
Nov 28, 2005

I do believe the Scarlet Pimpernel was living in an earlier century than was Sherlock Holmes. Holmes would truly have a difficult time finding any clues that led him to, "That dammed elusive Pimpernel."

There are clues and then there are clues. Gold bullion has been making new highs. I hereby present some clues that I believe may be of some value in discovering why the HUI and most precious metal shares refuse to make new highs. There may be a message in these clues. I doubt we will have to wait very long to find out if they are of any value.

The purpose of this report is to show that regardless of the breakout of gold bullion there is still the probability of a severe correction in the HUI and other precious metal shares. There is enough contrary evidence for me to hesitate about announcing, "All aboard. The train is leaving the station." I have read a number of reports that state the bull market in the precious metals and their shares has resumed. I don't think it is presumptuous of us to require gold and silver bullion and their shares to make new highs before we can be confident that the bull market has resumed. Waiting for all of the evidence to arrive will also give our trading program a much better chance of starting with profits rather than losses.

The reason for waiting is really simple. I have seen a number of bull markets over the past 50 years. Every single one of them went much higher than most analysts predicted. There is very little we will miss by waiting for the evidence to arrive. If we do have a sharp drop in the price of the HUI, there will be much to gain. The HUI is currently in the 245 range. A drop down to the 150 area would represent about a 40 % decline. If we began accumulating shares as the HUI approached the 150 area, we will have avoided a great deal of pain. When the bull market is confirmed by the HUI closing over 258, we would already have about a 70 % gain. $100,000 invested near a potential HUI bottom of 150 would be worth about $170,000 at the break out point of 258. A double from that point forward would mean that our $100,000 would be worth well over $300,000. If you do the math, it gets better as the rise continues. Is this a rambling fantasy of an old man? Maybe, maybe not. This mature elder, person (sounds better than old man) believes there is sufficient evidence to cause us to wait before we leap in. Allow me to share the evidence with you.

From time to time in this report I will be quoting W.D.Gann. He was one of the great stock and commodity market teachers.

"The farther back you have a record of a stock or commodity and the more you study it, the more you will understand its actions and know when it is making tops and bottoms." -W.D. Gann

I will be presenting evidence from gold, silver the HUI and XAU indexes.

I originally thought the HUI was making a flat type correction as per the illustration over the chart. A perfect flat correction would be 3 waves down in leg a, three waves up in leg b, and a final 5 waves down in leg c. When it became obvious that leg c was not going to be 5 waves down, I knew something else was brewing. The illustration of, "something else" is on the page below this chart.

We may be witnessing one of these two types of corrections. I don't know which one at this point. If you look carefully at the first illustration and compare it to the chart of the HUI, we are due for one more wave down. That would be wave c and have 5 small waves of its own. This would complete this long drawn out correction and finally lead to the next bull phase for the HUI.

If the price of the HUI drops to the previous lows the major rising trend line should be broken to the down side. This may accompany the final wash out to corrective lows.

"NEGATIVE DIVERGENCES ARE PROBABLY THE LEAST COMMON OF THE THREE SIGNALS, BUT ARE USUALLY THE MOST RELIABLE AND CAN WARN OF AN IMPENDING PEAK." ... Stockcharts.com

Negative Divergence

"A negative divergence forms when the security advances or moves sideways and MACD declines. The negative divergence in MACD can take the form of either a lower high or a straight decline. Negative divergences are probably the least common of the three signals, but are usually the most reliable and can warn of an impending peak."

"NEGATIVE DIVERGENCES ARE PROBABLY THE LEAST COMMON OF THE THREE SIGNALS, BUT ARE USUALLY THE MOST RELIABLE AND CAN WARN OF AN IMPENDING PEAK." ... -stockcharts.com

The statement below is by Alf Field. He is one of the few people that have been using Elliott wave counts longer than I have. He is excellent at what he does and has made minor adjustments as the market proceeds. I have posted his wave count below and next to the monthly gold chart. From the $382 high he expected a corrective low at $320. You can see that low on the chart. He projected the next wave to top at $500. We are just about there. From $500 he expects a correction down to $420. From $420 he projects a wave up to $630 and that would complete only the first major wave up. He designates the first major wave as Wave (1). After reaching $630 in major Wave (1)* there is still major wave (2) down,(3) up, (4) down and finally Wave (5) up. This would complete the entire gold bull market. His numbers are based on the London Gold second fix which is slightly different then our futures chart. The final Major Wave (5) is usually the Wild and Wooly Wave where the "Mad Hatters" come out to play. It should be a sight to behold!

"I have some minor credentials for entering this debate. I was using the Elliott Wave Principle (EWP) years before Bob Prechter popularized it with his books on the subject and his accurate calls in his monthly publication "The Elliott Wave Theorist". During the 1970's I had a degree of success using the EWP in the gold market. For some reason, possibly the huge emotional element in this market, I found that the EWP produced its best results in the gold market.

I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment. The EWP does have the tools to provide a magnificent guide to potential future market movements and turning points, these being its major strengths." -Alf Field

We may be very close to the final wash out of the precious metal shares. The evidence for a final wash out is very powerful.

1. "NEGATIVE DIVERGENCES ARE PROBABLY THE LEAST COMMON OF THE THREE SIGNALS, BUT ARE USUALLY THE MOST RELIABLE AND CAN WARN OF AN IMPENDING PEAK." ... stockcharts.com

2. A corrective wave formation on the HUI, XAU and various precious metal shares that calls for one more wave down.

3. Alf Field's Wave count that calls for a drop to $420 after reaching the price of $500 an ounce. $500 is just about here. After the drop to $420 a rise to $630 is projected.

I am aware that just about everything written about gold and the gold shares is extremely bullish right now. The expectation is that the move has started and will continue.

The evidence I have presented says otherwise. A bit more patience and we may have the opportunity to acquire lower priced shares. If not, we know this gold bull market has a long way to go before it reaches a top. I will recommend that we enter when the market has finally tipped its hand.

Silver bullion appears to have completed four waves of a potential five wave triangle. It should soon be headed for Delta long term # 4 low, due in mid February 2006, and medium term # 8 or # 10. If it is to start down soon, that would require an early medium # 7 high.

The silver chart patterns 30 years apart are similar. The timing of the major highs and lows is very similar and quite remarkable. Silver is the commodity whose timing conforms best to the Gann 30year Master Cycle. The timing dates of highs and lows, for silver, 30 years apart are listed on the page below.

If silver continues to repeat its patterns of 30 years ago it should bottom in the $5.50 to $6.00 area. The long term Delta turning point # 4 tells us this may occur in February 2006.

THE IMPORTANCE OF THE 30 YEAR SILVER CYCLE

Silver bottomed on November 3, 1971.
30 years later
Silver made a double bottom on November 26, 2001.

Starting on November 3, 1971, silver advanced for 2 years, 3 months and 23 days.
30 years later
Starting on November 26, 2001, silver advanced for 2 years, 4 months and 7 days.

Silver topped on February 26, 1974 and had a vicious decline of 43 %.
30 years later
Silver topped on April 2, 2004 and had a vicious decline of 45 %.

Silver bottomed on January 26, 1976.
30 years later
Silver is due for a Delta long term # 4 low on February 15, 1976.

2004 to 2006 SILVER CHART

1974 to 1976 SILVER CHART

I will end this bit of technical treasure hunting with a picture of our friend Sherlock Holmes. He is looking for clues. I am doing the same thing. There are many areas in the market that we should look at and try to make sense of in order to arrive at reasonable conclusions. We must look back as far as we can to see what happened in the past. W.D.Gann was wise enough to know that in the markets as with people and Nature, in due time," The past is Prologue." It is a lot of work, but I find it fascinating and fun.

We either board the train if it leaves the station soon or continue to review what I have presented today. Remember this, bull markets go higher than most analysts and observers believe is possible. Boarding the train on a break out to new highs of the HUI, along with other required evidence, will give us the confidence we need to know the bull market has resumed.

In my opinion, this is the safest and best way to proceed. However, if we do experience a severe decline, I will be suggesting we buy some bargains at lower prices.

Stay Well,
Ron Rosen

email: rrosen5@tampabay.rr.com

Tee charts reproduced courtesy of The Delta Society International.

321gold Inc