Playing the bottoming of metals.

As early as June 2013 I have been growing increasingly bullish on metals based on my wave chart analysis.  It has been tricky going for sure as the charts work to confuse most of the people most of the time.  At this point, however, there are limited options for the bottoming of gold (not presented in any particular order):

1.  No bottom, ever.  In other words, gold goes bankrupt and loses all of its value. In other words, maybe it's different this time.  Maybe gold really is a "barbarous relic" which has no real value since you can't eat it.  Maybe the central banking Illuminati has finally succeeded in taking over the world with their fake paper currency and leveraged debt.  All I can say to this is "yeah right".  Gold has never gone bankrupt in, well, forever.  That's quite a bit of history to unwind for something like the global debt Ponzi which has only been in play for 100 years.  No, gold is not going away.  It is about to go nuts to the upside as the Grand Illusion of debt based prosperity collapses globally.  Gold was one of the first things used as money since man became able to rise up out of a hand to mouth existence with the need for savings and it will be the last money standing should we ever devolve back down to a subsistence life style.

2.  Gold has already bottomed and has just finished a small wave 1 up  It is now retracing into a small wave down, gathering steam for a 3rd wave that will break it out of its long standing down sloping trend line.  This is what many can be looking at, but is looking increasingly less possible due to EW rule violation shown below.

  3.  Gold is playing out an ending diagonal.  The 4th rail bump has just occurred and now the chart is likely to head back down into the 5th and final wave of the ending diagonal which makes up the C wave.  I think this is the most likely scenario.  There are 3 ways for it to play out as shown below.

a) The chart goes back down to mid channel of the diagonal, finds support and then comes ripping back up to take out resistance.  What is interesting about this scenario is that it has been very common of late.   The market knows it should wait for the chart to hit the lower rail but some players get too excited and cannot wait.  They worry more about gold going up in a hurry than further losses from here.  Also, those who do technical analysis will understand that if they buy too early that they have no plans to sell if a throw under occurs.  In fact, they will leave powder dry to buy more should that occur.  Their 2nd buy tranche will occur either based on throw under or based on breakout.  But at least they have some of the good stuff very near the bottom of the bear market.  These will be very strong hand, not day traders looking to clip a few bucks here and there.

What's also interesting is that it will look a lot like the invalid scenario above.  People will assume it is a 3rd wave break out when in fact the breakout would be happening on 3 of 1.  For the near term it would mean little but some weeks later when the real 3rd plays out many will be caught short and that is what generally powers the gap in a 3rd wave: panic short covering.

b) The shares go to the bottom of the channel and find support, cannot break below.  Then they bounce back up and out.  After a bear market that has been so long and strong as the current metals bear, I would expect something more dramatic than this, but this would be the EW standard ending diagonal finish.

c) The shares dip below the lower rail for a very short time and then come blasting up back through into the channel, take a small breather as a 2nd wave down forms, and then blast out the top in a 3rd wave.  That path would give market participants a very strong confidence that the bottom is in as long as the shares do not break back down into the ending diagonal channel.

Regardless of the path it takes, I think those who are dollar cost averaging into gold will be very happy about it at the end of 2014.  Keep in mind that EW can play out in many different ways so the short term action is not as important as the fact that gold has been beaten into the dirt.  It is a hated asset right now and that is really its biggest strength.