Gold & Precious Metals
We spend a lot of time focusing on gold, however, its little brother silver is currently in a much more interesting situation from a technical perspective:
Click HERE or on chart to enlarge:
There is substantial promise in the silver chart:
- Strong support clearly exists around and just below the $19 level
- Bullish momentum divergence at December low ($18.72)
- First time price moves above the 50-day simple moving average since October (indicative of a bottoming process with a potential fresh uptrend)
- Little resistance above $20.50 until $21.50-$22 area
- Gold/silver ratio currently near 62 should see some reversion to the mean (around 55) this year
We are seeing some early buying coming into silver futures in Asia – $20.25 is an important short term level with the key breakout level at $20.50 just above:
Click HERE or on chart to enlarge:
In our previous article on gold, we examined the situation in the U.S. dollar and the euro as many times in the past they gave us important clues about future precious metals’ moves. At that time we wrote in the summary:
(…) gold’s lack of will to really (!) react to positive news, like the dollar’s huge intra-day drop, is a bearish piece of information on its own and an indication that gold is likely to move lower in the short run.
On the next trading day, after the essay was posted, gold and silver declined and dropped to their fresh monthly lows. With this downward move gold almost touched the June low. This strong support level encouraged buyers to push the buy button and the yellow metal, which last week saw its best week since October, rebounded to around $1,250. At the same time, silver came back above $20.
Will the recent week’s rally continue? Before we try to answer this question, we’ll examine the long-term charts of gold and silver to see if there’s anything on the horizon that could these precious metals higher or lower in the near future. We’ll start with the long-term chart of gold (charts courtesy by http://stockcharts.com).
For Larger view click HERE or on image:
Even though a lot happened last and this week, from the long-term perspective not much changed on the gold market.
We saw a move back to the rising long-term resistance line (currently close to $1,250), but gold only touched it, only to decline once again. At this time the medium-term outlook remains bearish. Any additional rally is not likely to move significantly above this level (from this perspective significantly means not more than $50 above it, which takes significant intra-day volatility into account).
Our previous essay on gold we wrote the following:
Please note that the exact target for gold is quite difficult to provide. In the cases of silver and mining stocks there are respectively: combinations of strong support levels, and a major support in the form of the 2008 low. In the case of gold, there are 4 support levels that could stop the decline and each of them is coincidentally located $50 below the previous one starting at $1,150: $1,150, $1,100, $1,050, and $1,000.
Taking into account the current situation in the yellow metal, the above price targets remain valid.
Let’s take a look at the chart featuring gold’s price from the non-USD perspective.
From the non-USD perspective, gold simply moved back to the previously broken support line and verified it as resistance. There was only an intra-week move above it, but the price is already back below the line, and it seems that it will close the week below it as well. Please note that in the final part of 2013 we also saw one intra-week move back above this line and this move was even more significant than what we saw this week. It too didn’t invalidate the breakdown. In fact, it was followed by a significant downswing. We can expect the situation to be quite similar shortly, if gold does indeed rally. The move higher could be temporary, and unless we have a weekly close above the rising support line (dashed line, currently close to 46), we will not have any bullish implications whatsoever.
Even if we see some strength, the ratio would have to move above 48 (where the upper declining resistance line is currently located) in order for the situation to become bullish.
Consequently, some short-term strength is clearly possible, but we don’t think that the medium-term downtrend will be invalidated.
Having discussed the current situation in gold, let’s take a look at the long-term chart of silver.
To view larger image click HERE or on chart:
It is often said that history repeats itself (or that it rhymes) and it surely applies when we look at silver’s recent performance.
At the end of December silver moved temporarily back above the rising support/resistance line, but didn’t manage to hold this level. The white metal gave up the gains and dropped below both long-term support/resistance lines, which triggered further deterioration.
This week, the white metal made another attempt to move back above the resistance lines, but failed to move above the upper of them and ultimately the breakdown below these lines was not invalidated.
The next downside target is the previous 2013 low, slightly above the $18 level. Once we see silver below it, the next (and probably final) stop will likely be close to $16. Overall, the trend remains down.
Summing up, looking at the current situation in gold and silver, we see that the medium-term trends remain down and the outlook for both remains bearish. However, on a short-term basis we can expect to see a temporary move higher. In case of gold, it doesn’t seem that the yellow metal will move above $1,250, and even if that happened, it would not be likely to move above $1,285 and change the medium-term trend. In the case of silver, given the white metal’s back-and-forth performance in the recent weeks, we also can’t rule out another move higher before the next big move down materializes.
Thank you for reading.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Tools for Effective Gold & Silver Investments – SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment – SunshineProfits.DE
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Disclaimer
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
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