Fear and discipline and gold: this might be my most important Gold post of the past 4 years.

Something is bothering me about the gold/silver break out of late.   The chart does not seem like the typical reversal which is why it had me puzzled for so long.  I made a bottoming call on metals back in June based on a good wave count.  It looked good at the start.  We started catching a bid really nicely.  But then something odd happened:  that August peak was not 5 easy waves up.  It was 3 waves up.  OK, sez I, I know I counted properly into the June low.  Waves do not lie.  So maybe it is just a strange looking 5 waves up.  So then I waited for 3 waves back down a-b-c.  Well, there were 3 waves down but they were not to the prior 4th, they were a full retracement and then some.  Importantly, what I thought was a 2 put in a lower low.  That is a clear violation of EW rules for the count I was using.

Now the chart has broken back out again, apparently, but using a wave pattern that is generally a retracement shape.  In other words, the first wave rolls off like its going asymptotic and then the next wave goes nearly vertical.  I call the effect the Ying Yang wave.  No this is not a technical term.  Like "Owl Ears", it is my own personal mnemonic for pattern recognition.  The effect is often an a-b-c that reverses suddenly back down.

If I'm right then gold will not break out to a higher high (higher than the red horizontal line).  IF it does that then I will forget about this ending diagonal thesis.  In fact, anything above the lime green line becomes very suspicious in terms of ending diagonal formation.  The dark green line is about where I would expect to see it and that happens to be just a tad above where the chart is right now.  So, if this ending diagonal theory is correct, metals and miners will peak in the next 1-2 days and then head down to a lower low as shown down to red 5 in the model below.  The move is drawn as a line but it should be a-b-c.

While I am perfectly happy if gold breaks out and proves this to be an invalid fear, the discipline aspect requires me to watch it very closely because:

• What I thought was the 5th wave down back in June is likely only 1 of 5 (shown above as red 1).  Thus, my prior wave count up that point was correct.  June was not the 5th wave bottom.  It was just the bottom of 1 of 5.
• Look at the 3 wave movements within that diagonal so far.  That is textbook Elliott triangle structure.
• In the current wave of the Ying Yang, I see gaps at the 3rd of 3 and gaps at the 3rd of 5 of C.  We are very close the the end of that 5th of C wave IMO.
• Gold and silver and metals have to bottom at some point but the market will try to screw as many of the players as possible.  I see some newsletters / gold bugs starting to get euphoric right now about the breakout.  That is a bad sign.  Generally the suspicion only turns into excitement after it's already late in the rally.  That is the sign that the markets have the proper amount of fear in them and that fear is generally learned though beatings and head fakes.
• I still would like to see capitulation type volume in silver. 
• Ending diagonals tend to fool Technical Analysts who don't know anything about Elliott Waves (and most do not follow waves).  Those who only go by support and resistance levels always get creamed by the oft seen ending diagonal throw over/under.  Anything the markets can do to fool the majority of the participants is just what they will do.
• Metals are trading right now with the broader markets.  I modeled a 5th wave on the $COMPX before the recent selloff and recovery.  The recovery did just what GLD's originally thought of as 2nd wave did:  It barely went to a higher high (GLD barely went to a lower low).  That means that an ending diagonal is likely forming in the $COMPX too.  Stocks and metals will likely decline the next wave together and everyone will think that gold is a commodity that should rise and fall with the stock market.  That is the final deception before the truth is revealed that gold is being remonified by the market.

This following bit of analysis could be all wrong.  After all, I'm not a big name stock analyst who appears on CNBC, blah blah blah.  And I am definitely still learning on the job.  But nobody is saying what I'm about to write, it is totally unique perspective as far as I can tell.  

In short, I think what we are seeing is a "crossover period", again designed to fool the markets.  Gold has been falling while the stock markets have been rising all last year.  Nobody gave that a second thought.  But now gold and stocks have come back into synch.  Gold is up while stocks are up.  So the herd will get used to this relationship as the markets go down while gold and silver go down 1 more wave into the 5th of the ending diagonal and likely with a nasty throw under.

Whereas the up-sloping ending diagonal for the stock market will spell the end of the Bernanke Put rally that has been raging since 2009, the downward pointing ending diagonal for metals will spell the end of the metals bear.  At that time, gold and silver will decouple from the stock markets in a big way.  In other words, they are not commodities, they are cash.  As in money.  As in what you run to when you sell your stocks in order to not get creamed by the collapse of the global debt Ponzi.

Yes, these are big model predictions.  But if I'm right, the market will be freaking out about gold heading downward in that throw under that I show above and that is RIGHT when new gold buyers should be loading up the boat.   If that happens it will be a perfect setup for gold.  If the chart then breaks back up through the 2 channel lines then it will be the biggest buy signal I have ever personally observed for gold, ever.  I don't like to use a lot of margin but for that I would.