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February 03, 2008

Precious Points: New Month, New Direction?
by Oroborean

"Though gold moved to record highs again this week, that doesn't rule out the possibility of a corrective phase having begun earlier this month. A simple three-wave correction could climb as high as $940-950 before being invalidated. Any failure of a pre- or post-Fed rally in this area would suggest a five-wave decline to about $800-830. The Fed… has lost the appetite for disappointing the markets. Though the rate-cut should suggest further upside in metals, this is the context in which readers should… act. Though silver could reach $17.40-17.50 before invalidating a return below $10, support between $12-$15 , especially in the strong band in the $13.75-14.25 area, tends to support further upside." ~ Precious Points: Can't Keep a Good Metal Down, January 26, 2008

Through prospects of a rate cut and precious metals rally looked good going into last week, TTC members had a line in the sand for gold to cross before invalidating a painful count that could see a retreat to $800 or lower. The day of the FOMC statement came and went without invalidating that count and Friday's sharp selloff seems to be its confirmation.

Though this may disappoint some of those looking for a quick move to $1000 or beyond, as you can see, this is hardly a call for a crash in gold. In fact, some would say a healthy pullback would be in order at this point to help build a foundation for the next several-hundred point.

This is also not the only possible count in gold, but since it was anticipated and seems to be confirmed, it is in my opinion the operative one. Notice we've already seen the start of support above the 5-week moving average, about $900, and could see a healthy retracement next week that still won't preclude further declines if not making a significant new high. Should this pattern play out, minimum downside is about $840, but could extend to test the strong support at $800. The movement from this area would help establish a clear count for the January 15th high and determine the direction for several months.

Significantly, silver fared much better than gold this week, though it has not invalidated a corrective count either. Remember, that wouldn't occur until nearly $17.50 in silver, and unless a sharp rally in gold to silver ratio is about to begin, it's doubtful silver will move that much further independent of gold. Silver did close on support at the 5-day moving average and this level will be crucial early next week in determining support and resistance.

While gold in particular took a hit late last week on strength in the dollar prompted by economic deterioration oversees and speculation of a rate cut from the ECB, it should be noted palladium, a platinum group metal, made a significant upside move this week that could bode well for all the PGMs. Though a rally to at least $420 is needed to confirm the move, the recent break of multi-month resistance at $390 for now suggests against being up in b with the possibility of c down going below $32o. Instead, it's tempting to label 1,2,1,2 of an impulse upward to new highs. Strength in the PGMs in general comes as production in South Africa ground to a halt under severe electricity shortages.

So, with the new month we may be seeing a new trend direction in gold and silver, even if there's a bit of a rebound next week. Uncertainty about banks, mortgage insurers, and foreign monetary policy has created chaotic patterns in most markets, including gold and silver. A platinum group metals play based on shrinking supply could be a haven if the more monetary metals are due for a near term correction.

Joe Nicholson (oroborean)
www.tradingthecharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.

Copyright © 2006-2008 Joe Nicholson

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