Let's put together what we know:
1. It has been known in advance that four of the ten Fed voters would turnover at the beginning of the new year. Three of the four who were removed were the three who were adamantly opposed to more QE. Three of the new voters are known to support QE. Only one of the new voters is opposed to QE. Most likely, the vote is now 9-1 in favor of more QE. Additionally, if the ECB is forced to print in order to keep European banks operating, then the Fed will certainly have to print as well in order to keep the dollar from getting too strong.
2. The commercials built a massive short position in silver up to the top in May 2011. The subsequent plunge was not sufficient, and so gold was allowed to go parabolic in July (unseasonally). It was then smacked down in September with knowledge that the final C-wave down would occur in December. The December COTs showed that the commercials had a net short position in silver at record low levels, not seen since the beginning of the silver bull market in 2003.
3. The gold Elliott Wave reached a 21% correction (Fibonnacci number) for Wave III-2 that nicely establishes that the correction has completed and we are now in Wave III-3 (the most powerful upward wave of the entire bull market). Sentiment in gold, silver, and miners had reached extremely low levels (near 2008).
4. The commercials have a record long position in the euro, anticipating a major rise.
5. The US dollar rally appears to be slowing down and showing signals (rising wedge, MACD) that it will turn down. The commercials have a massive short position in the US dollar. Public sentiment for the dollar is very high (a bearish contrarian indicator).
6. The US stock market has been doing inexplicably well since October 2011. Yesterday, the DJIA H&S neckline resistance was finally broken. The only explanation that makes sense fundamentally is frontrunning a QE announcement by the Fed on 25 January 2012. During QE2, the DJIA rose from 9936 to 12876 in 8 months (+29.59%) and formed a perfect 1-2-3-4-5 Elliott Wave.
7. Barack Obama has an election to win in Novemeber. The economy needs to be doing well (or at least appear to be doing well). If stocks were to crash now, they could complete a horrible series of head-and-shoulders tops within a broadening top. Stocks could crash to 3000. Therefore they must be levitated in order to abort the head-and-shoulders pattern.
In the end, central bank criminals ALWAYS take the easy way out: counterfeit more money.
My current belief (although I might change my mind later) is that gold and silver will not top out at the same time. Note that the recent silver top came in April 2011 while the recent gold top came in September 2011. Based on the work and studies I've done and read, I think silver will complete its mania phase in 2016-2017 and top at US$678.49. Gold will certainly rise along with it. But I expect a major correction after this powerful move upward (the surprising disappointment, wave IV down). If gold corrects 55%, silver could correct 89% (all the way back to about US$75). Similar to 1980, physical silver could flood the market at such high prices. While there is large and growing industrial demand for silver, it's the investment demand that creates the supply shortage.
While silver trades sideways and recovers from the blowoff, I believe that gold will reach its top around 2021-2022, at the same time that the stock cycle should reach its bottom and begin a new bull market. Gold should reach at least US$11,000, and I'm starting to think it will go higher.
If we do get some form of QE3 and gold breaks above its downtrend resistance (note: a new triangle has formed and gold will probably sit at 1685 on 25 January, waiting to break up or down), you'll want to own silver. When silver breaks out of its bull flag (currently at 37), it should be a quick trip back to 50.
Disclosure: Long physical gold/silver.
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