Before we look at PAAS, a quick update on our previous "Gold Update" article suggested an initial retracement of the now active gold correction to the fibonacci 0.382 level. As we said:

"Indeed, it may retrace (1 - 0.618) which is 0.382 that takes us down to $492."

As it turned out, gold bounced one dollar short of that target as shown on the Kitco intraday snapshot for today (16 th December).

A strong bounce to $507 may suggest the end of the matter, but we do not think a four-day correction properly deals with a 5-month $100+ move. But we look now at the world of silver.

Back in the June issue of New Era Investor we carried a technical analysis of the silver play stock, Pan American Silver. At that time, PAAS had pretty much been following the correction in the silver price after the metal's dizzying rise to about $8.50. This is what we said back then:

Moving onto PAAS, we may expect to see some agreement with the HUI even though it is not one of the index's components. The count for the same period is below:

The count is pretty much the same. As we zoom into the 14-month correction, we prefer the count below which follows the HUI closely.

Once again, the Y wave at the bottom right may have finished to complete the entire larger correction though a double bottom did not quite form for PAAS. The two lines around the Y wave denote the ambiguity of where the ultimate bottom lies.

Now six months on, we revisit this bellwether silver stock to see how things have been going along since silver's recent rise to new highs above $9.20. We have no reason to alter the larger picture, though we did leave the ambiguous question of whether the impulse move from April 2001 to April 2004 was the first wave in a multi-year ABC corrective wave or the first wave in a longer impulse wave.

Since we believe that silver is in a multi-decade bull market, the idea that this is some kind of decade-long correction doesn't make much sense to us, but we'll put it on the back burner since it is a theoretical possibility in terms of Elliott Wave analysis. The only way to really resolve that is to obtain a 25-year chart of PAAS prices. When we find that, the question will be answered.

In the meantime, we take the 2001-2004 move as just the prelude to something bigger. The correction that has ensued from April 2004 gave the suggestion in our June charts that it was potentially over in May 2005 with the completion of the less common WXY wave. You can see the "Y" label in the bottom right of the second chart. The issue at that time was whether the Y-wave had completed. In theory, it had done enough to complete, but the fractal nature of Elliott Waves left the door open for more whipsawing.

So we come to December 2005 and what does that chart look like now? Here it is:

The WXY correction is now done and the further possibility of this being an extended ABCDE contracting triangle faded when PAAS broke above the upper trend line in mid-September. We can also dismiss the outside possibility that the big move from 2001-2004 was just an ABC wave since the new highs have taken effect.

This suggests the first impulse wave (of many to come) ran from May to September, corrected and we have just seen the first stage of the third and usually stronger third wave begin in late October. The May price surge ran for $6.16 whilst this new October impulse has already completed $5.54. A Fibonacci calculation on that $5.54 move gives us a probable next target of about $25 before a meaningful correction.

The only thing I don't like about this first impulse is that the wave 4 correction of August infringes the wave 2 price territory of June. That is normally a no-no in classical Elliott Wave Theory but given the volatility of silver stocks, it doesn't surprise me. The way to resolve that is to look at the closing price chart instead of the OHLC chart to mask out the volatility. In this case, wave 4 just kisses wave 2 nicely. However, the fact that a new high has been made should be the ultimate confirmation of the end of this long corrective pattern.

As for this wave 3 move that is apparently shaping up for another move up, an initial and minimum target of $42 is what we are looking at (1.618 times the 2001-2004 move) going out to the end of the decade. But since silver fever is only matched by gold fever, we could easily see this baby barrel up to over $50 and the silver bull market is still not finished!

What kind of rewards have PAAS investors reaped since the silver bull started in 2001? Riding mining equities is all about leverage on the underlying commodity. Since the bull began, silver has increased by a factor of 2.12 to date whilst PAAS has achieved 7.64 that gives a leverage ratio of 3.60. Not a shabby return, but we can do a lot better in the silver mining sector, albeit with a greater risk.

Meanwhile, since PAAS is a member of the Nasdaq, how has it compared to its siblings in that hi-tech loaded sector? We must always remember PAAS may play its part in Nasdaq index tracking funds as well as the price of its main product. The relative performances are show below.

The higher correlation with the silver price should be obvious to all after a comparison of the peaks and troughs of the three classes of investment. Nevertheless, some lower correlation can be seen with the Nasdaq. In fact, the choppiness of the Nasdaq since early 2004 matches silver and PAAS quite well (we are not suggesting Nasdaqites are closet silver lovers). Thus we can't help feeling that PAAS didn't escape some of the bloodletting that went on during the Nasdaq reality check of 2000-2002. Also, the recovery of the Nasdaq since then has probably bolstered the PAAS volume but not as much as by those who know a silver bull market when they see one!

In conclusion, a short-term corrective is in order followed by a vigorous move upwards. If the Nasdaq takes a dive or shows strength, we expect any PAAS price action to be dampened or vitalised respectively.

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99. To view a sample copy of the New Era Investor newsletter, please go to www.newerainvestor.com and click on the "View Sample Issue Here" link to the right. Comments are invited by emailing the author at newerainvestor@yahoo.co.uk