Six weeks ago, Bob Prechter called the top in silver. He published his forecast in The Elliott Wave Theorist on Friday, March 14. The top came on Monday, March 17. This chart shows what silver has done since then, updated through April 23. To get a sense of how Bob sees a market in terms of wave patterns, please read the excerpt below from that March Theorist. He also suggests what will happen to gold and the U.S. economy.
Elliott Waves in the Silver Market (excerpted from The Elliott Wave Theorist, March 14, 2008)
Let’s apply the Wave Principle to the silver market. The April 18, 2006, issue of The Elliott Wave Theorist predicted an imminent top in silver, with a price projection of $21.70 and a backup projection of $16.61:…
Silver topped 2½ weeks later and fell 37 percent. But the peak price just above $15 did not match either of the price projections. Though silver corrected for over a year, 2006 proved not to be the final top. I had labeled wave 4 as a triangle, clearly the best labeling even in retrospect. But wave 4 was a zigzag, and the peak in 2006 was only the top of wave (3) of 5. The price projection of $21.70, however, is looking very good. The high so far is $21.32, and once again the wave structure appears nearly terminal while market sentiment is extreme…. The wave count is nearly satisfied, although ideally it should end after one more new high….. A slight new high would give this top the same profile as that of 2006. [Editor's note: Silver topped at $21.40, basis spot prices, on March 17, 2008.]
If this analysis of silver is accurate and silver does peak this year and begin a bear market, gold is likely to go down with it. As we have already seen, gold tends to perform less well during economic contractions, so the economy is likely to peak along with gold. This conclusion fits our long-standing observation that silver is an excellent predictor of recessions: When it goes down substantially, recession follows. Despite the recent torrent of bad news, the economy has yet to go into recession. So all this analysis fits our view: The economy is on its last legs, and the precious metals are nearing a top right along with it.