Precious Metals and the Gold Bugs Headed Higher? 

By: Robert_McHugh_PhD

Gold finished the Minor degree wave 3 of Intermediate degree 1 up on May 12th at $730.40. Gold 's Minor degree wave 4 was a Symmetrical Triangle , a consolidation pattern of the Minor degree wave 3 rally that started back in 2001 and extended into the May 12th, 2006 top. Waves a through e within wave 4 are complete. A break above $730 has confirmed that the triangle is complete, and wave 5 up is underway, and is a “buy” signal .

The 50 basis point drop in the Fed Funds interest rate provided a burst of wind behind Gold's ascension, driving it above $730 quickly, as was mentioned would happen in this newsletter three weeks ago . Wave fives typically extend with precious metals, so for wave 5 ,$900 is not out of the realm of possibility for Gold in 2008.

Silver's performance is lagging Gold's since Silver has industrial use, and the stock market's dive is forecasting a slowing economy, which suggests industrial demand for silver may slow. However, Silver also has monetary value, so its downside should be limited. Silver finished its Minor degree wave 1 up, and it appears an Ascending Bullish Triangle is back in the picture. An alternate which is that the pattern has morphed into a wave 2 -down a-b-c flat, with a truncated wave c- down. Not crazy about that labeling, but is a possibility at this time. It may have more downside left before a huge rally unfolds. A decisive breakout above 15 would confirm that wave 3 up of 5 up is underway.

Once Silver rises above $15, then it is off to the races toward $21 as wave 3 of 5 up kicks in. Wave fives typically extend in precious metals, a solid reason Silver could be headed for $21. Silver is approaching $14 as of Friday, September 28th, perhaps putting the finishing touches on wave d up.

Gold stocks could experience a minor correction of their recent amazing rally should the broad major stock averages go into decline this month. But, then the HUI should be off to the races.

The HUI bounced sharply from its latest down-leg to complete its one-year-old Symmetrical Triangle pattern . This pattern was a continuation pattern, meaning the direction of prices going into the pattern will be the same once the pattern completes — in this case up .

That rally began in Mid-August, and the first leg, Minuette wave i up completed in mid-September. Since has been an a -down, b- up, and soon to start c -down for Minuette ii down. Then the HUI race toward $500. Given the new “buy” signal we just got in the HUI, the alternate labeling, that wave ii down was a shallow “flat” pattern is another possibility.

“Jesus said to them, “I am the bread of life; he who comes to Me shall not hunger,
and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father,
that everyone who beholds the Son and believes in Him,
may have eternal life; and I Myself will raise him up on the last day.”
John 6: 35, 38, 40

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by Robert McHugh, Ph.D.  
technicalindicatorindex.com

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Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions, buy and sell signals, and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates, buy and sell signals, and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Copyright 2007, Main Line Investors, Inc. All Rights Reserved.

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