The strong implication of this chart is that gold and silver have a few years left to run higher. In this remaining time frame I expect gold to challenge the 1980s highs on an inflation adjusted basis. Gold made new nominal highs at $1032 in March 2008 but that is well short of the inflation adjusted 1980 high of about $2500. Silver is unlikely to challenge its inflation adjusted high of $135 unless a mega-buyer like the Hunt brothers steps in again but the nominal high of $52 is certainly an objective.

The timeframe for this blow off is 2012 at the earliest which brings me to another issue. In terms of Elliott Wave Analysis, I used to think that gold and silver would both trace out a five part impulse wave from the beginning (1999 or 2001 for gold) and we would witness a classic fifth wave climax in the distant future.

I don’t think that will happen now - the projected 2012 timeframe does not allow enough time for it. If wave 1 was 1999/2001 to 2008 and this is a current wave 2 correction then two of the five waves have already occupied at least 8 years of a possible 13+ year bull market. That does not leave much time for waves 3, 4 and 5. So my opinion is that the entire bull market will be a three wave affair of which the second wave is nearing completion. Another confirmation for that is that the 1964-1980 bull was a distinct three wave pattern. The final third wave will outdo the first bullish wave and if we take the first gold bull wave to be from $255 to $1032 and multiply it by a likely Fibonacci 1.618 extension then the final blow off third wave for gold could reach out to about $2000 (i.e. $700 + ($1032-$255)*1.618) but it could of course go higher.

Applying the same projections to silver brings us to a minimum projection of $35 but it could spike briefly higher (i.e. $8.50 + ($21.34 - $4.50)*1.618)). By some coincidence, we also note that $35 is also simply $21 multiplied by 1.618. I would also point out that a projected line from the 2004, 2006 and 2008 silver highs extends out to the low $30s as a possible confirmation. Silver and gold stocks will naturally leverage higher by a factor of 2:1 or more.

That all sounds exciting for the precious metals investor but for the meantime investors need to be prepared for a medium term wash out in preparation for the next and final great buying opportunity.

Further analysis of silver can be had by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain a free issue of The Silver Analyst and learn about subscription details. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk.