Silver smack down now in the final stages

It's no secret that metals, including silver, have been under pressure for some time now.  Having said that, I think there is good evidence to show that the main thing under attack is the paper price of metals.  Try to buy physical metals and you will encounter much higher prices than you would have thought given the spot price.  You will also encounter long waits for delivery.  Regardless of the volatility, at least we know for sure that silver will never become worthless like stocks and bonds can (and eventually will) become. 

Because of recently reduced prices, people all over the world are accelerating their hoarding of the physical metals.  That which was designed to scare them out of their metals (as it has done so many times in the past) is now having the opposite effect.  Like I have writting on many occasions, when the Ponzi is in the collapse stage, you suddenly can't fool anyone.  Of course the con men really have no choice but to play their steely eyed, bold faced game of chicked with the herd.  They will do it until horns of the herd gore them the kicking feet of the herd crash into them.  That time draws quite near IMO.  The lions are waiting for the herd to get distracted as it always seems to do but this time the herd has unusual resolve.  As a result I believe that the COMEX and/or the LME will default and the paper price of metals will rapidly diverge from the physical price.  Things that used to work all the time will stop working and things that should have been happening all along but didn't will suddenly come into play again.

And so while waiting for this all to happen I find it entertaining to watch the charts, practicing my Elliott wave modeling skills looking to predict the exact bottom (at which time I plan to make another major purchase of physical metal).  Below is the high level chart which I believe is in the middle of an A-B-C pullback from it's nearly $50 high.  That high point @ $50 formed a high degree wave 1 ("big 1").  Now, per Elliott wave rules, the A-B-C pullback appears to be forming a "big" wave 2.  When this massive wave 2 is complete I expect an absolutely shocking wave 3 upward to form in which the metals exchanges will likely default on delivery and a huge degree of fraud in the metals markets will be exposed.  Smart people, IMVHO, will want to be heavily invested in PHYSICAL metal for that 3rd wave.

Waves A and B of "big 2" have already formed IMO and are labeled below in large red font. 



Thus, wave C should be forming right now.  C should be formed of 5 downward trending steps where steps 1,3, and 5 of it should each in turn break down into 5 downward trending waves while 2 and 4 of C are a-b-c upward trending rallies in the otherwise downward overarching trend.  Again, this is just standard Elliott wave modeling, I have not done anything fancy with the labeling here.

So let's look at the C wave that I think it now in progress.  It starts from the B wave and consumes the right 1/3 of the chart above.  It starts off with 5 obvious steps downward into 1 and then rallies into 2. By Elliott wave modeling rules, the next wave should be 3 of C.  Elliott wave principle states that C waves are like 3 waves - never the shortest of the 5 and generally the most powerful.  So when you get 3rd of 3rd waves playing out, the result is often dramatic and it shows up as gaps in the chart (which I like to refer to as "cliff diving" if the trend is down).  The 3rd of C is highlighted within the blue box above and, true to model expectations, a massive plunge/gap is seen during 3 of 3 of C.  That plunge serves as a good indication that my wave count is correct.

Because I can easily count 5 waves down in it, I think wave 3 of C is now complete.  That means there should be a nice "vee"style rally into wave 4 of C.  My target price for that is somewhere in the $23 range as you can see from the zoom-in of the 5th of C wave shown below (basically a zoom in of the blue box from the above chart).  This level of detail really shows the power of 3rd waves and more specifically, the power of a 3rd of a 3rd of a C.   Major cliff diving!!

So, after the 4th wave rally plays out then all that should be left is the 5th of the 5th of the C in order to complete the "big 2" pullback.  The red lines model my expected bottom points but in general they usually either occur in the middle of the channel or they dip down very momentarily (and generally on high volume) to touch the lower channel line that connects the 1st and 3 waves (shown in grey below).  If we see the 5th of C bottom in the middle of the channel it will result in a failed 5th wave and an inclining double bottom.  That would be the most bullish scenario as it would mean that hedge fund gamblers could not wait for the wave to finish before jumping in.  In any case, we are talking about $3-$5 more downside here, tops IMO.  The is quite a bit in percentage terms anymore but it will seem like mice nuts once the 3rd wave up kicks in because I expect "big 3" to propel silver to $75. 

The fundamentals which should propel metals into a 3rd wave are forming right this very minute.  After years of being in decline, US interest rates are now beginning to rise again despite Bernanke buying all of the debt offerings. 

The reason for rising US interest rates is that others in the world are beginning to dump their treasuries, thus adding to supply.  They are either giving up on trusting us to repay the debt in like kind or they simply cannot live with nearly 0% interest return on their vast dollar holdings because their own economies are crumbling.  Everyone is dying for lack of yield.  They could buy wheat and corn but buying commodities only increases the prices of these items, thus making life harder on their poor people due to rising cost of food.  Starving people will take you into the street and kill you if they can so it is to be avoided at all costs.  As a result, we are now starting to see the dollar holders slowing beginning to buy US assets with the cash (like Smithfield foods). 

As long as the US Government allows it, this cash infusion is going to chase prices upwards IMO while the associated treasury sales required to raise cash for the purchases will increase interest rates and cause a housing sell off.  However, I can envision a day where government begins telling foreign companies, especially the Chinese, that they cannot buy our companies and our US assets "for reasons of national security".  In other words, "you idiots took our worthless green paper in trade for your goods and we do not want the worthless paper back now.  You are stuck with it".  Clearly the Chinese and others will not be happy about this but the alternative is to accept and accelerate the long term unavoidable outcome of massive inflation or even hyperinflation in the US.

In any case, I think it is a smart move to continue dollar cost averaging into metals and to expect volatility.  But never believe that a lower spot price for your metals means the metal has lost value!  The paper price is the patsy price.  It is meaningless in the big scheme of things and in the long run (retirement).  Metals should be the bulk of anyone's retirement holdings as they are the only real money in the world.  After governments screw everything up everywhere, gold and silver will still be good money in everyone's eyes.

In closing I will remind the reader that, as usual, my views are presented in the name of financial entertainment and worth not one thin dime more than you paid to read them!